"Say-on-pay": back in the spotlight this proxy season

Katy Pitch -

If you’ve been reading the business news lately it’s hard to miss the renewed focus on the “say-on-pay” resolution at annual corporate meetings in Canada. These advisory resolutions, which ask shareholders to support their company’s executive compensation policies and practices first started to appear in Canada in 2010, when the major Canadian banks introduced them. As of late last year, over 140 Canadian companies held say-on-pay votes, including over 75% of the companies on the S&P/TSX 60 Index.  In contrast to 2014, when no Canadian company failed to receive approval of its executive compensation resolution, there have already been a number of well publicized “no” votes in 2015, which is why say-on-pay is again all over the business pages.

What is “say-on-pay”?

“Say-on-pay” describes the ability of shareholders of a company to vote directly on executive compensation. Say-on-pay votes can be binding or non-binding, depending on regulatory requirements or internal corporate policy.  In the U.S., companies subject to Securities and Exchange Commission rules promulgated under Dodd-Frank are required to hold a non-binding say-on-pay vote at least every three years. As well, in the U.K., companies must provide a forward-looking remuneration policy report that is subject to a binding shareholder vote every three years and a retrospective remuneration implementation report that is subject to an annual advisory shareholder vote. In comparison, while considered a good governance practice, Canadian companies are not obligated to hold a say-on-pay vote, nor are they required to implement any changes to their executive compensation even if shareholders vote down the say-on-pay resolution.

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Start-up crowdfunding prospectus and registration exemption adopted by certain CSA members

Vincent Laurin -

As discussed in a post last week, the securities regulators of British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia (the "Participating Jurisdictions") have implemented registration and prospectus exemptions intended to facilitate the ability of Canadian start-ups and early stage companies to raise capital through crowdfunding in the Participating Jurisdictions. These exemptions, enacted through local blanket orders (the “Blanket Orders”) in the Participating Jurisdictions, are further to the comments received as part of the consultation held in March 2014 and will expire on May 13, 2020. The conditions related to the prospectus and registration exemptions, summarized below, are outlined in Multilateral CSA Notice 45-316 – Start-up Crowdfunding Registration and Prospectus Exemptions – the Blanket Orders of each Participating Jurisdiction should be reviewed for the precise terms and conditions applicable to the use of the exemptions in such jurisdictions.

Prospectus Exemption

The prospectus exemption allows a non-reporting issuer, that is not an investment fund and whose head office is located in a Participating Jurisdiction, to issue eligible securities through online funding portals. The funding portals may either rely on the registration exemption contained in the Blanket Orders or they may be operated by a registered dealer that has provided certain written confirmations to the issuer. While issuers are exempt from the prospectus requirement under this exemption, they must produce an offering document in the prescribed form, which contains basic information about the issuer, its management and the distribution, including risk factors, how the issuer intends to use the funds raised and the minimum offering amount. Following the closing of the offering, the offering document must be filed with the participating regulator along with a report of exempt distribution.

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TSX proposes a new order type: Long Life orders

A new order type is being proposed to address concerns with market quality caused by high frequency trading.  The objective of the proposed Long Life order is to improve execution quality for certain retail and institutional investors and their dealers “by rewarding those willing to commit liquidity to the book for a minimum period of time”.  In short, a Long Life order will be executable when it is booked to the TSX Central Limit Order Book but it cannot be amended or cancelled for a fixed minimum resting time of one second.  The TSX contends that this fixed minimum resting time would not disrupt trading by those who do not use latency sensitive trading strategies and methods and by those who commit liquidity to the TSX Central Limit Order Book.  Long Life orders would benefit from receiving priority over other orders at the same price that are not Long Life orders.

Comments are due by June 22, 2015.  For further details, please consult the TSX Notice of Proposed Amendments and Request for Comment regarding Long Life orders, which would amend Part 1, Rule 4-604, Rule 4-801, Rule 4-802 and Rule 4-901 of the TSX Rule Book

TSX Company Manual amended to reflect decrease in use of physical share certificates

Amendments to the TSX Company Manual pertaining to the requirements for evidence of security ownership have been adopted by the TSX and approved by the OSC.  The amendments reflect the decrease in the use of physical share certificates in favour of electronic book-keeping.  The amendments, which are categorized as “housekeeping amendments” which do not require publication for comment, are made to Parts I, III, IV and VI and Appendix D of the TSX Company Manual, among other areas.

The most significant amendments are made to Appendix D to the TSX Company Manual which sets out the TSX’s requirements for issuers in respect of providing security holders with evidence of security ownership.  These amendments reflect the following additional forms of evidence of security ownership: certificated and uncertificated book-entry only services agreements with CDS; non-certificated inventory in which the listed securities are held by registered owners through a CDS approved transfer agent; and the direct registration system which allows listed securities to be held in electronic form with no physical security certificate.  A second key amendment was made to Section 347 of the TSX Company Manual which provides that a TSX listed issuer may appoint a transfer agent and registrar with a principal office in any of Vancouver, Calgary, Montreal or Halifax, in addition to Toronto.

For complete details on all of the amendments to the TSX Company Manual, please consult the TSX Notice of Housekeeping Rule Amendments (May 21, 2015).

Consolidated list of local prospectus and registration exemptions published by the CSA

The CSA has published a comprehensive list of all local prospectus and registration exemptions available in Canada as of May 21, 2015.  While NI 45-106 Prospectus Exemptions and NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations harmonize most of the prospectus and registration exemptions available in Canada, there are certain local exemptions available in certain provinces only.  These exemptions are typically effected by way of a local rule or blanket order, or in some cases, by statute or regulation.  CSA Staff Notice 45-304 (Revised) is a convenient and comprehensive resource for identifying these local exemptions.

For further information, please see CSA Staff Notice 45-304 (Revised).

TSX begins public consultation on changes to customized share certificate requirements

The TSX is seeking comments with respect to the possible elimination of the special requirements for security certificates that currently apply only to “Exempt Industrial Companies”. The high cost of printing these customized “Exempt Certificates” has been brought to the attention of the TSX by a number of bank note companies. The Securities Transfer Association of Canada has also indicated its support for the universal use of the more generic “Non-Exempt Certificates” that are currently issued by all listed issuers other than Exempt Industrial Companies. With this announcement, the TSX is appealing to interested parties, including industry participants and law enforcement agencies, for comments on technical issues that might arise were the Non-Exempt Certificate Requirements to be applied to all listed issuers.

The deadline for submitting comments on the proposal to the TSX is June 22, 2015.  For further information, please consult the TSX notice

CSA provide specified relief from CRM2 requirements

On May 21, 2015, the Canadian Securities Administrators issued a staff notice advising that all CSA member provinces have issued parallel orders providing relief from certain amendments related to the implementation of CRM2.

The parallel orders have three important consequences.  First, for firms that are not members of self-regulatory organizations (SROs), the parallel orders confirm that the CRM2 requirements relating to market value, position cost, account statements, additional statements, scholarship plan dealer statements and security holder statements that were to come into effect on July 15, 2015 may now be met starting with statements delivered for the period ending December 31, 2015.  This order codifies relief that was previously announced by the CSA in January.

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CSA regulators adopt crowdfunding prospectus exemption and accompanying funding portal registration exemption

On May 14, 2015, the securities regulators of British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia announced that they have implemented, or expect to implement, a crowdfunding prospectus and registration exemption intended to facilitate the ability of Canadian start-ups to raise capital. 

The prospectus exemption would apply to issuers who meet certain conditions.  Notably, issuers may only raise up to an aggregate of $250,000 per distribution with a maximum of two such distributions per issuer annually.  Furthermore, investors are only permitted to invest $1,500 per distribution. 

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EU added to substituted compliance provision under Canadian trade reporting rules

On May 14, 2015, the OSC announced that the amendments to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting have received Ministerial Approval and are therefore effective as of April 30, 2015.  The European Union derivatives reporting rules now officially joins the reporting rules of the CFTC as “equivalent reporting obligations” for the purposes of the exemption. Under this “limited” substituted compliance provision, the exemption is only available where the transaction is reportable solely because a counterparty to the transaction is a registered derivatives dealer in Ontario or a guaranteed affiliate of a “local counterparty”. The amendments also postpone to July 29, 2016 the requirement that designated trade repositories publicly disseminate transaction-level data. Transaction-level data reporting had been scheduled to come into force on April 30, 2015.  For further information, please consult our previous post on the subject.

Directors' duties series debuts on our M&A blog

Many of our readers will be interested in following the new "directors' duties" series on our M&A blog. The first post in the series, by Alan D'Silva and Genna Wood of our Toronto office, is a refresher on six basic concepts that every board member needs to know: the duty to manage, the fiduciary duty, the duty of care, the business judgment rule, conflict of interest and oppression. Future posts in the series, to be published over the coming months, will delve more deeply into specific issues of ongoing concern to members of Canadian corporate boards.

IIROC publishes study on impact of dark rule amendments

The Investment Industry Regulatory Organization of Canada recently published a study on the "Impact of the Dark Rule Amendments" which analyses the dark liquidity framework implemented in 2012.

The objective of these amendments was to establish a framework which balances recognition of the contribution of dark orders to the post-trade price discovery process with the need to protect lit market price discovery, ensure meaningful price improvement and establish relative equality between transparent marketplaces and dark pools. The study concludes, among other things, that the amendments reduced dark volume in the absence of meaningful price improvement with little deterioration in market quality and that the objectives of the amendments were thus met.

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CSA publish best practices guidance for proxy advisory firms

On April 30, 2015, the Canadian Securities Administrators published National Policy 25-201 Guidance for Proxy Advisory Firms.  The guidance in NP 25-201 is designed to promote transparency in the processes involved in determining voting recommendations and to enhance market participants’ understanding of the activities of proxy advisory firms.

NP 25-201 addresses conflicts of interest, the determination of voting recommendations, the development of proxy voting guidelines and communications with clients, market participants, other stakeholders, the media and the public.  The final version of NP 25-201 published by the CSA incorporates a few key changes to the version of NP 25-201 published for comment on April 24, 2014 that we previously discussed. These changes include: (i) providing that the board of directors of a proxy advisory firm is responsible for managing conflicts of interest; (ii) recommendations on best practices for the development of proxy voting guidelines; and (iii) recommendations that proxy advisory firms provide certain online disclosures about the hiring, training and retention of individuals.

The CSA has noted that they will continue to monitor the proxy advisory industry and developments in other jurisdictions to determine if NP 25-201 adequately addresses Canadian concerns.

We encourage our readers to check back regularly for an analysis of NP 25-201 that we will be posting in the near future.

Important amendments to exempt financing regime to come into force on May 5, 2015

Important amendments to NI 45-106 Prospectus and Registration Exemptions are set to come into force tomorrow, May 5, 2015.

Notably, the amendments will require issuers relying on the accredited investor prospectus exemption to obtain a signed risk acknowledgment form when selling securities to individual accredited investors. Such risk acknowledgement forms must be retained for a period of up to 8 years from the distribution. Individual accredited investors who are permitted clients (i.e. who have net financial assets with an aggregate realizable value in excess of $5 million, being a new category of accredited investor) are exempt from the requirement to complete and execute a risk acknowledgement form.

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OSC approves amendments to the TSX Company Manual dealing with voluntary delisting

On April 30, 2015, the OSC announced that it has approved amendments to section 720 of the TSX Company Manual, which deals with the voluntary delisting of an issuer.  The amendments are intended to provide security holders with a vote on whether the securities that they hold should be voluntarily delisted.

The amendments will require an issuer to submit an application for voluntary delisting to the TSX accompanied by: (i) a resolution of the issuer’s board of directors authorizing the application to delist; and (ii) a draft copy of the press release which must be pre-cleared by the TSX.

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Quebec AMF to revoke derivatives blanket exemption decision effective September 5, 2015

Alix d'Anglejan-Chatillon -

The Autorité des marchés financiers (AMF), Quebec's financial services regulator, issued an important decision yesterday which provides for the revocation effective September 5, 2015 of Decision No. 2009-PDG-0007 General Decision Respecting the Exemption from the Application of Sections 54, 56 and the First Paragraph of Section 82 of the Derivatives Act (the Blanket Decision).The decision can be found beginning on page 413 of the April 30, 2015 Bulletin.

The AMF had issued the Blanket Decision on January 22, 2009 in conjunction with the enactment of the Quebec Derivatives Act (QDA) to provide transitional relief for transactions and other activities in relation to certain specified derivatives, subject to certain conditions. Canadian and foreign market participants which have relied on this exemption should review their current derivatives markets activities in Quebec and determine whether any other statutory relief may be available, whether there may be a basis to apply for focused discretionary relief under the QDA or whether any current client arrangements with Quebec counterparties should be discontinued by the September 5, 2015 deadline.

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