Amendments to derivatives trade reporting rule to lessen burden on local end-user counterparties

The Ontario Securities Commission, among other regulators, released amendments today to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting (the TR Rule). The amendments are intended to lessen the burden on local end-user counterparties, while also delaying the effective date of reporting obligations under the rule.

As we discussed last week, the CSA recently announced a delay in implementation of reporting obligations. Specifically, clearing agencies and dealers will now have to begin trade reporting on October 31, 2014, while all other OTC derivatives market participants will be required to report beginning on June 30, 2015. The requirement for trade repositories to make transaction-level reports publicly available will also be delayed to April 30, 2015.

The amendments also repeal provisions of the rules that established a fall-back mechanism requiring local non-dealer counterparties to monitor the transaction reporting of foreign dealer reporting counterparties. The amendment is intended to relieve a significant burden on local end-user counterparties.

Meanwhile, Quebec’s AMF today stated that it intends to formalize the delay in implementation dates by publishing a blanket exemption to be effective as of July 2, 2014. Further, it also intends to propose amendments to the TR Rule in order to “maintain a harmonized national oversight and reporting regime for OTC derivatives markets”, in the near future. The AMF advises that it therefore seeks to specify that reporting counterparties that are dealers, clearing houses or financial institutions will be required to report derivatives data pursuant to Part 3 of the TR Rule as of October 31, 2014.

IIROC report highlights enforcement activity for 2013

Earlier this week, the Investment Industry Regulatory Organization of Canada released its Enforcement Report for 2013, which covers IIROC's enforcement activities and key policy initiatives for last year.

According to IIROC, enforcement priorities in 2013 included focusing on the protection of seniors and vulnerable investors, unsuitable investment recommendations and firms' supervision of retail operations. In relation to the market activities, IIROC's enforcement focus was on the identification, investigation and prosecution of cases involving manipulative and deceptive trading (including such practices as wash trading, spoofing and layering).

Ultimately, IIROC conducted 200 investigations in 2013 across Canada. The regulatory violations most prosecuted against individuals related to due diligence, handling of client accounts and suitability. Inappropriate personal financial dealings, discretionary trading and off-book transactions also garnered a number of prosecutions. In the case of firms, prosecutions were most likely in relation to concerns over supervision and capital deficiencies. Sanctions against individuals and firms totaled almost $8 million.

In respect of policy initiatives and developments, the report highlights IIROC's project to consolidate its enforcement rules, its draft sanction guidelines, and its efforts to collect fines and cost awards, which include new legislative powers in Quebec to facilitate enforcement of IIROC's disciplinary decisions in the province and the authority to enforce cost orders in Ontario in light of a 2013 Superior Court decision. IIROC also states that it intends to begin publishing on its website a list of disciplined individuals who are delinquent in the payment of monetary sanctions.

Ontario's proposed prospectus exemptions: existing security holder exemption

Emma Parker and Simon Romano -

Of the new prospectus exemptions proposed to be adopted by the Ontario Securities Commission (OSC), the “existing security holder” exemption represents, in many ways, a significantly streamlined avenue for reporting issuers to raise funds from their existing securityholders. While similar in many ways to the corresponding exemption that recently came into force in other Canadian jurisdictions (the “Counterpart Exemption”), the “Ontario Exemption” as proposed includes certain additional requirements, which we examine in detail below.

As we previously discussed, on March 20, 2014, the OSC published for comment the Ontario Exemption along with three other proposed prospectus exemptions. These new exemptions flow from the key themes noted in OSC Notice 45-712 Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raising, including the need to facilitate capital raising for small and medium-sized enterprises, the importance of harmonizing exemptions across Canada and the importance of regulatory monitoring and oversight in the exempt market.

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Exchange of Letters to facilitate Canadian issuer offerings in Chile

The OSC, AMF, ASC and BCSC have entered into an Exchange of Letters with Chile's Superintendencia de Valores y Seguros intended to facilitate the public offering of securities of Canadian reporting issuers in Chile on an exempt basis.

Pursuant to Chilean law, SVS Chile may exempt from its securities registration requirements public offerings of any foreign securities, including securities issued by Canadian-based issuers, provided such securities are issued by issuers under the supervision of a regulator with whom the SVS Chile has entered into a cooperation arrangement, which supports Chilean investors having access to public information regarding the foreign issuer and its securities.

According to the Exchange of Letters, SVS Chile has agreed to provide Canadian regulators with information and trade data in the case of concerns regarding market manipulation, abuse or fraud involving Canadian issuers listed in Chile. Other members of the CSA wishing to become a participant to the Exchange of Letters may do so at any time by executing a counterpart of the letter and providing notice to the SVS Chile and the other Canadian participating regulators.

CSA extend time for OTC derivatives trade reporting

The CSA announced today that they are pushing back the date for the implementation of OTC derivatives trade reporting obligations. Clearing agencies and dealers will now have to begin trade reporting on October 31, 2014, while all other OTC derivatives market participants will be required to report beginning on June 30, 2015.

The extension is intended to provide more time for trade repositories currently engaged in the designation or recognition process to develop reporting infrastructure and accept market participants onto their systems.

Securities regulators sign MOU with Bank of Canada to promote efficient clearing and settlement systems

The OSC, BCSC, AMF and the Bank of Canada have entered into a Memorandum of Understanding intended to promote the safety and efficiency of clearing and settlement systems and manage systemic risk in a coordinated and consistent fashion. The MOU specifically calls on the parties to consult and coordinate with each other on such issues as (i) concerns that could affect the safety or efficiency of a regulated system; (ii) the publication of proposed rules, and amendments to rules, in respect of regulated systems; and (iii) independent reviews or audits in regards to a regulated system.

While the regulated systems governed by the MOU may change from time to time they currently consist of CDSX, the clearing system operated by CDS Clearing and Depository Services Inc., and CDCS, being the Canadian Derivatives Clearing Service operated by the Canadian Derivatives Clearing Corporation.

Canadian institutions granted 10-day extension for FATCA registration

Roanne C. BratzJudith Charbonneau Kaplan and Anne Ramsay -

Canadian financial institutions have been granted a 10-day extension to May 5, 2014 (instead of April 25, 2014) to register on the IRS online portal and obtain a Global Intermediary Identification Number (GIIN) in order to be FATCA-compliant.

For more information on registration on the IRS FATCA portal, see our post of February 21.

Canada enacts sanctions related to Russia and Ukraine

The Government of Canada recently announced that it has imposed an asset freeze on certain designated persons related to Ukraine and Russia.

Specifically, the sanctions, enacted pursuant to the Special Economic Measures Act, prohibit Canadians and any person in Canada from, among other things (i) dealing in any property held by or on behalf of a designated person; (ii) providing any financial or other related service in respect of the property of a designated person; and (iii) providing any financial or related service to or for the benefit of a designated person. It is further prohibited for any person in Canada or Canadian outside Canada to do anything that causes, assists or promotes anything that is prohibited under the regulations.

The sanctions also require that various financial entities, including securities dealers and advisers determine on a continuous basis whether they are in possession or control of property owned or controlled by or on behalf of a designated person. Relevant disclosures must be made to the RCMP.

The sanctions add to the regulations enacted last month under the Freezing Assets of Corrupt Foreign Officials Act.

TSX-V provides guidance regarding waivers of minimum pricing requirement

The TSX-V issued guidance yesterday regarding the specific circumstances in which the exchange will consider waiving the $0.05 minimum pricing requirement generally applicable to financings. According to the TSX-V, while the exchange is not generally amenable to waiving the requirement, it will consider waiver requests on a case-by-case basis, treating certain circumstances more favourably, such as rights offerings and pending share consolidations.

OSC releases draft statement of priorities for 2014-2015

The Ontario Securities Commission yesterday released for comment its draft statement of priorities for the financial year ending March 31, 2015.

The draft statement specifically identifies five regulatory goals for the following year, namely: (i) delivering strong investor protection, including by evaluating options in regards to the best interest duty and continuing the point of sale initiative for mutual funds; (ii) delivering responsive regulation, including by publishing proposals to update the order protection rule and continuing work on proposals to enact new capital raising prospectus exemptions; (iii) delivering effective enforcement and compliance oversight and efforts; (iv) supporting and promoting financial stability, including by working with CSA colleagues to create a harmonized and efficient OTC derivatives regime in Canada and continuing work on a cooperative securities regulator; and (v) running a modern, accountable and efficient organization, including identifying ways to reduce the regulatory burden and using electronic solutions when appropriate.

The OSC is accepting comments on its draft statement of priorities until June 1, 2014. For more information, see OSC Notice 11-769.

IIROC releases proposed guidance to establish marketplace thresholds

The Investment Industry Regulatory Organization of Canada yesterday released proposed guidance designed to establish a framework for Canadian marketplaces to adopt appropriate marketplace thresholds. Such controls are intended to control short-term, unexplained price volatility and promote fair and orderly markets.

IIROC initially proposed a set of principles in May 2012 as it considered formal proposals to establish marketplace price and volume thresholds. The proposed guidance is ultimately based on three principles, namely that: (i) marketplace thresholds should operate to generally preclude the execution of orders at prices that would otherwise, on execution, require regulatory intervention by IIROC on the triggering of a single-stock circuit breaker or the application of the unreasonable trade policy; (ii) the volatility control mechanism used by a marketplace should have the least amount of impact that is practical on the market-wide operation of the price discovery mechanism and access to "tradable" liquidity; and (iii) the introduction or amendment of marketplace thresholds by a marketplace should, to the greatest extent possible, not impose a regulatory burden on other marketplaces or stakeholders.

According to IIROC, the proposed guidance is intended to be principles-based, allow each marketplace flexibility in the structure and application of its marketplace threshold, and ensure that marketplace thresholds can be implemented with minimal impact on stakeholders.

Comments are being accepted on the proposed guidance until July 3, 2014. According to IIROC the final guidance will become effective at least 180 days following the publication of a final notice. For more information, see IIROC Notice 14-0089.

IIROC proposes guidance for part-time CFOs

Earlier this week, IIROC published for comment proposed guidance setting out the organization's expectations regarding the engagement of part-time chief financial officers. Specifically, the proposed guidance confirms that the obligations of part-time CFOs are the same as those of full-time CFOs, and also outlines dealers' responsibilities of supervision. The issue of part-time CFOs who work for more than one dealer is also considered, with IIROC setting out expectations for CFOs in such circumstances.

IIROC is accepting comments on the proposed guidance until June 2, 2014. For more information, see IIROC Notice 14-0088.

Investment Funds Practitioner published for March 2014

Darin Renton -

The Investment Funds Branch of the Ontario Securities Commission recently released the March 2014 issue of the Investments Fund Practitioner, which provides an overview of recent issues arising from prospectuses, continuous disclosure documents and applications for discretionary relief filed by investment funds. A few highlights are discussed below.

Continuous Disclosure

According to the Practitioner, the Branch recently received an inquiry in regards to the disclosure of cash and money market funds in the management report of fund performance (MRFP), Fund Facts and quarterly portfolio disclosure. On this point, the Practitioner states that Branch staff expect cash and cash equivalents to be disclosed on a line separate from an investment in a money market fund in the summary of investment portfolio (the list of top 25 positions) in the MRFP. In the portfolio breakdown, however, money market funds holdings may be grouped with cash and cash equivalents as the summary nature of the portfolio breakdown provides for flexibility. Meanwhile, the top 10 investments in the Fund Facts should separate cash and cash equivalents from money market funds and the top 25 holdings in the quarterly portfolio disclosure should be exactly the same as the fund’s MRFP disclosure.

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IIROC reports best execution survey results

Simon Romano -

On March 28, 2014, IIROC released a notice (14-0082) summarizing the results of an online survey on the issue of best execution of its members engaged in secondary market trading of listed securities. The survey was conducted between December 2012 and February 2013.

“Best execution” is defined under National Instrument 23-101 as the “most advantageous execution terms reasonably available under the circumstances”, and the NI 23-101 obligation is to use “reasonable efforts” to achieve best execution. For IIROC regulated dealers, the obligation as set out in Rule 5.1 of the Universal Market Integrity Rules (UMIR) is to “diligently pursue the execution of each client order on the most advantageous execution terms reasonably available under the circumstances.”

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ASX requirement for non-transferable exchangeable shares may disadvantage Australian corporations looking at a Canadian acquisition transaction

Quentin Markin -

On March 31, 2014, Mamba Minerals, together with its wholly-owned subsidiary, Champion Exchange (Canco), completed the acquisition of all of the common shares of Champion Iron Mines (Champion) by means of a court-approved plan of arrangement. The transaction was structured as an exchangeable share transaction under which certain eligible Canadian shareholders could elect to receive all or part of their consideration in the form of exchangeable shares of Canco instead of ordinary shares of Mamba. The purpose of the exchangeable shares was to offer a tax deferred rollover for eligible Canadian shareholders, rather than the immediate triggering of a taxable disposition under the Canadian Income Tax Act.

As part of the approval process, Mamba sought confirmation from the Australian Securities Exchange (ASX) on which it was and remains listed (under its new name Champion Iron Limited), that in the opinion of the ASX “the terms that apply to each class of equity securities … be appropriate and equitable” as required by ASX Listing Rule 6.1. The ASX subsequently granted that confirmation in respect of the exchangeable shares but subject to conditions, including that the exchangeable shares not be transferrable. As a result, the transaction terms were ultimately amended, and the exchangeable shares made non-transferrable save for certain transfers that are integral to the operation of the exchangeable share structure, and transfer where, in effect, no beneficial ownership change occurs. Champion issued a press release on March 10, 2014 announcing the transfer restriction applicable to the exchangeable shares.

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