Canadian Securities Law Online : Canadian Securities Lawyer & Attorney : Stikeman Elliott Law Firm : Montreal, Ottawa, Calgary, Vancouver, Montreal, Toronto

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On February 26, 2010, members of the Canadian Securities Administrators (CSA) each issued omnibus/blanket orders in response to applications requesting exemptions from certain provisions of National Instrument 31-103 Registration Requirements and Exemptions (31-103).  31-103, together with amendments to related instruments and policies, came into effect on September 28, 2009 (the Effective Date). Notice of these orders was provided under CSA Staff Notice 31-315 Omnibus/Blanket Orders exempting registrants from certain provisions of National Instrument 31-103 Registration Requirements and Exemptions, which was also published on February 26, 2010. The orders are summarized below.

Continuation of transition/grandfathering provisions for registrants adding jurisdiction

Each regulator issued an order that provides a person or company adding a jurisdiction to his, her or its registration, with the benefit of certain grandfathering and transition provisions provided under Part 16 of 31-103 in that additional jurisdiction.  Specifically, those grandfathering and transition provisions that deal with proficiency, capital, insurance, relationship disclosure information, referral arrangements, dispute resolution service and client statement requirements were included in the order. To rely on the order, the registrant must: (i) have been continuously registered in a jurisdiction in Canada since the Effective Date; (ii) remain registered in that jurisdiction during its reliance on the order; (iii) be exempt under the relevant section of Part 16 in that jurisdiction; and (iv) register, after the Effective Date, in the same category of registration (and in the case of an individual, with the same sponsoring firm) in an additional jurisdiction.

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The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) are hosting a forum on March 23 at the Design Exchange in Toronto to discuss Consultation Paper 23-404, "Dark Pools, Dark Orders, and Other Developments in Market Structure in Canada", published in September 2009. Interested parties can register on the IIROC website.

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The Canadian Coalition for Good Governance (CCGG) submitted a brief to the House of Commons' Standing Committee on Industry, Science and Technology in February regarding the Committee's five-year review of the Canada Business Corporations Act (CBCA). The brief follows the CCGG's appearance before the Committee in November 2009.

According to the CCGG's brief, governance requirements for public companies in Canada have not kept pace with best practices. As such, the CCGG recommends enshrining basic democratic and governance norms for public companies into the CBCA. Specifically, the CCGG recommends that the CBCA be amended to: (i) prohibit slate voting; (ii) require a majority voting standard for director elections; (iii) require annual director elections for all CBCA public companies; (iv) require public companies to disclose the detailed results of shareholder votes for matters on the ballot; (v) give significant shareholders access to the proxy circular; (vi) require all shareholders to be treated equally in the proxy process, irrespective of whether they want to protect the privacy of their information; (vii) facilitate "notice and access", whereby shareholders would be able to access documents from companies' websites; (viii) generally require the separation of the roles of CEO and Chair of the Board; (ix) require shareholder approval for significantly dilutive acquisitions; and (x) give shareholders more meaningful ways to resolve claims under the oppression remedy.

It is unclear what steps the Committee will take at this point, however, as Parliament has only just resumed after prorogation and no activities are yet listed on its schedule.

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The U.S. Securities and Exchange Commission (SEC) adopted a new short selling rule on February 24, 2010. The new rule is intended to promote market stability and preserve investor confidence during periods of stress and volatility by restricting short sellers from being able to drive the price of a stock further down when it is already experiencing downward pressure. Short selling involves the sale of stock that an investor does not own or has borrowed, where the investor intends to profit by buying the stock back at a price that is lower than the price of the short sale.  While acknowledging that short selling may be useful in that it can promote market liquidity and pricing efficiency, the SEC cautions that it may also be used to "improperly drive down the price of a security or to accelerate a declining market in a security."

The SEC considered various options over the course of the last year to address its concerns regarding short selling and has decided to implement an alternative uptick rule that would restrict short selling when the price of a security has fallen more than 10% in one day.  This restriction would remain in effect for the remainder of the day as well as the next day and under   such a scenario, short selling would only be permitted if the price of the security was above the current national best bid. The rule will apply to all equity securities that are listed on a national securities exchange, whether traded on an exchange or in the over-the-counter market, and  requires trading centers to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent the execution or display of a prohibited short sale. The rule will become effective 60 days after its publication in the Federal Register, while market participants will have six months to comply with its requirements.

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On February 22, the U.S. Securities and Exchange Commission (SEC) announced that it was amending its proxy rules to improve the "notice and access" model for furnishing proxy materials to shareholders. Under the model, issuers are permitted to post their proxy materials on the internet and send shareholders a "Notice of Internet Availability of Proxy Materials" (a Notice), directing shareholders to the website where the proxy materials may be found, in lieu of delivering a full set of proxy materials in paper accompanied by the above Notice. While the notice and access model, adopted in 2007, was intended to promote the use of the internet as a cost-efficient and reliable means of making proxy materials available to shareholders, the SEC has found lower shareholder response rates to proxy solicitations when the notice-only option is employed.

The SEC attributes the lower response rate in cases where the notice-only option is used to confusion among investors regarding the operation of the notice and access model. Thus, issuers and other soliciting persons will be provided additional flexibility under the amendments with respect to the format and content of the Notice, including being able to provide additional materials explaining the e-proxy rules, rather than being restricted to inclusion of the boilerplate-type language currently set out by the rules. Changes are also being made with respect to the time by which a soliciting person other than an issuer must send its Notice to shareholders. The effective date of the amendments, first proposed in October 2009, is March 29, 2010.

In addition to the introducing the above amendments, the SEC also published an Alert describing changes that went into effect in January 2010 eliminating discretionary voting by brokers in the election of directors and the effects of these changes on proxy voting. The SEC also launched a new website providing investors with general information respecting, among other things, proxy voting and e-proxy rules.

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Budget 2010, delivered this afternoon by Finance Minister Jim Flaherty, contains an update of the Canadian government's intention with respect to the establishment of a federal securities regulator and implementation of a federal securities act. Specifically, the budget sets a three-year target for the establishment of a federal securities regulator and identifies key next steps. These steps include: (i) the release of a draft Canadian securities bill this Spring; (ii) referral of the draft bill to the Supreme Court for an opinion as to Parliament's authority under the Constitution with respect to federal regulation of the securities sector; (iii) delivery of an organizational and administrative transition plan by the Canadian Securities Transition Office this Summer; and (iv) ongoing work on rules and regulations that will complement the federal securities act. While inviting and encouraging all jurisdictions to join the federal effort, Budget 2010 states that the government will move forward with a majority of provinces and territories through voluntary participation.

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As of March 1, the U.S. Financial Industry Regulatory Authority (FINRA) Trade Reporting and Compliance Engine (TRACE) will now include debt issued by federal government agencies, government corporations and government-sponsored enterprises as well as primary market transactions in new corporate debt issues. The expansion of TRACE represents a 50% increase in the number of debt securities subject to its reporting requirements.

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On February 25, Saskatchewan joined Alberta, British Columbia and Manitoba in issuing an order making available certain limited trade-based registration exemptions to persons that would otherwise be required to register as exempt market dealers in the province. The order is most similar to that of Alberta, as it includes a condition that the person relying on the exemption must not have provided financial services to the purchaser at any time other than in connection with a prospectus-exempt distribution under the relevant sections, while also including language that the person relying on the exemption must not be registered or required to be registered. A companion policy providing guidance was also released.

The Northwest Territories, Nunavut and the Yukon Territory are expected to issue similar orders.

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The Provincial/Territorial Council of Ministers of Securities Regulation (Council) issued its 2009 Progress Report yesterday outlining the various regulatory activities undertaken last year across Canadian jurisdictions. The issues considered in the Council's Progress Report include the federal transition to a single securities regulator, the upcoming changeover to IFRS and the introduction in various jurisdictions of harmonized securities transfer legislation.

The Progress Report also provides a preview of initiatives that the Council anticipates the CSA will undertake during the next year, namely, a new rule dealing with oversight of credit rating organizations, the development of a harmonized regulatory framework for derivatives, including OTC derivatives, hedge fund regulation and executive compensation requirements.

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