Derivatives product determination rule to be adopted by remaining provinces on May 1, 2016

Margaret Grottenthaler and William Scott -

Members of the Canadian Securities Administrators (CSA) from the provinces and territories of Canada other than Ontario, Manitoba and Quebec recently published their product determination rule, Multilateral Instrument 91-101 Derivatives: Product Determination (MI 91-101), which specifies the types of over-the-counter derivatives that will be subject to the new derivatives data reporting rule applicable in their jurisdictions.   We previously discussed the new derivatives data reporting rule, Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting (MI 96-101), in detail here

In addition, these members of the CSA have stated that they expect MI 91-101 to specify the types of OTC derivatives that will be subject to future rules relating to OTC derivatives.  MI 91-101 is expected to come into force on May 1, 2016 together with MI 96-101.

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Canada's governance landscape - key issues for the 2016 proxy season

In this article, we highlight some key issues that we believe will be the focus of attention for Canadian boards and shareholders as the 2016 proxy season unfolds. While many of the issues are familiar from past years, some return with renewed enthusiasm bolstered by regulatory developments and growing shareholder activism.

Please click here to download the PDF.

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Final rule for derivatives trade reporting proposed in remaining Canadian jurisdictions

William Scott and Margaret Grottenthaler -

Securities regulators in all the remaining provinces and territories of Canada have now published final rules in the form of Multilateral Instrument 91-101 Derivatives: Product Determination (MI 91-101) and Multilateral Instrument 96-101 Trade Repositories and Derivatives Data Reporting (MI 96-101) and related Companion Policies for their proposed derivatives trade reporting regime.  As we wrote in January 2015, these regulators are proposing a regime that is harmonized with but separate from the regime that has been adopted in Ontario, Manitoba and Quebec.

MI 96-101 sets out the requirements trade repositories have to meet to be recognized as entities to which market participants can report their trades and outlines the reporting obligations of derivatives market participants in respect of transactions which are in scope for reporting under MI 91-101.  While MI 96-101 is quite similar to the existing trade reporting rules in Ontario, Manitoba and Quebec, there are some noteworthy differences.  It is also anticipated that further amendments will be made to MI 96-101 to align it with amendments currently proposed in Ontario, Manitoba and Quebec.  These amendments are expected to come into effect at the same time as reporting under MI 96-101 comes into effect. 

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CSA publishes revised draft segregation and porting rules for customer collateral in cleared derivatives

William Scott and Margaret Grottenthaler -

As part of a series of developments in the area of derivatives regulation, the Canadian Securities Administrators (CSA) proposed a rule, on January 21, 2016, aimed at ensuring that clearing is carried out by clearing intermediaries and clearing agencies in a manner that protects customer collateral and positions and improves the ability of a derivatives clearing agency to withstand a clearing member default.  The rule will allow for different clearing models (principal to principal or FCM) and is broadly aligned with principles adopted in the US and other jurisdictions.  Comments are due by April 19.

Two types of entities are the focus of Proposed National Instrument 94-102 Derivatives: Customer Clearing and Protection of Customer Collateral and Positions (NI 94-102): clearing intermediaries (CI) and regulated clearing agencies (RCA). 

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Crowdfunding exemption launched

Darin Renton and Matei Olaru -

Issuers in Canada seeking financing on a prospectus exempt basis now have an additional means of raising capital. On January 25, 2016, Multilateral Instrument 45-108 Crowdfunding (MI 45-108), which we previously reported on, came into force in Manitoba, Ontario, Quebec, New Brunswick and Nova Scotia (the Participating Jurisdictions). MI 45-108 intends to facilitate online capital-raising activities by start-ups and small and medium-sized enterprises through the creation of a new crowdfunding prospectus exemption (the Exemption) and an online funding portal registration framework.

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Rights offering guidance published by TSX and TSXV

Simon Romano and Junaid Subhan -

On the heels of recent amendments by the Canadian Securities Administrators (CSA), the Toronto Stock Exchange (TSX) has issued guidance to issuers on rights offerings. 

The TSX announced that: (i) despite the CSA amendments, rights offering documents must still be pre-cleared with the TSX; and (ii) the advance notification period to set a record date is reduced to five days, from seven days.  The TSXV issued similar guidance that addresses some additional issues.  

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The TSXV plans to revitalize Canada's public venture market

Simon Romano and Tracy Chen -

Canada’s public venture market has traditionally served as a catalyst of growth for many small-cap and early-stage companies. However, it has experienced a recent decline due to various factors, including a sustained collapse in commodity prices. In December 2015, the TSX Venture Exchange (TSXV) released a white paper outlining a revitalization plan to address weaknesses that have limited the success of the public venture market in Canada. The white paper was followed by a series of town hall meetings across the country. In the white paper, and as further described at the town hall meetings, three main goals were identified: (a) reducing costs without compromising investor confidence; (b) expanding the investor base and enhancing liquidity; and (c) diversifying and growing the stock list. Proposed initiatives in support of these goals are summarized below. The TSXV has already begun to execute some of these initiatives and has assigned aggressive timelines for the implementation of those that remain to be implemented.

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Dissent rights condition in Public M&A: Will Canada continue its own way?

Our readers may be interested in a recent post by our colleagues on the Canadian M&A Law blog discussing the differences in the U.S. and Canada on the use of dissent/appraisal right conditions in M&A transactions.  For further details please see our post on CanadianM&

Five provinces adopt a new prospectus exemption for retail investors relying on suitability advice from an investment dealer

Andrew Beamer and Andrew S. Cunningham -

The securities regulatory authorities of five provinces – British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick – have adopted a prospectus exemption that will generally allow Canadian-listed issuers to distribute securities to retail investors who have obtained suitability advice from a registered investment dealer. The new exemption was announced in Multilateral CSA Notice 45-318 on January 14, 2016 and is intended to facilitate capital raising for eligible issuers and make it easier for retail investors to participate in private placements while at the same time ensuring that appropriate protections are in place.

The exemption is generally the same as it had been proposed in 2015 (see our earlier general post here and our Alberta-specific post here). The exemption applies only to distributions of (i) a listed security, (ii) a unit consisting of a listed security and a warrant, or (iii) a security convertible into a listed security at the securityholder’s sole discretion. Note that, while an offering document is not required, if one is voluntarily provided, investors will have certain rights of action in the event that it contains a misrepresentation.

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Quebec's AMF proposes an omnibus package of amendments to the Derivatives Regulation

Alix d’Anglejan-Chatillon -

The proposals would expand the exemption for trades in non-Canadian futures and introduce a new hedger certification requirement for OTC derivatives transactions.

On January 14, 2016, the Autorité des marchés financiers (AMF), Quebec’s financial markets regulator, published a package of proposed amendments to the Derivatives Regulation (the Proposed Amendments) made under the Derivatives Act (Quebec) (QDA).  The Proposed Amendments are open for comments for a period of 30 days to February 13, 2016. 

The Proposed Amendments address a number of miscellaneous but important areas of the Derivatives Regulation (the Regulation) and would introduce certain material new requirements. In a follow-up press release issued on January 18, 2016, the AMF notes that the amendments are intended to adapt the Regulation to the rapid evolution of derivatives markets.

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TSX provides FAQ guidance on normal course issuer bids

William Scott and Laura Levine

On January 15, 2016, the Toronto Stock Exchange (TSX) issued Staff Notice 2016-0001 (the Staff Notice) which answers questions on the application of sections 628 and 629 of the TSX Company Manual (the Manual) to normal course issuer bids (NCIBs) by listed issuers. While some of the guidance underscores information from the Manual, a number of points have been helpfully clarified.

Intersection between TSX and ATS purchases

Notably, the TSX has drawn a clear distinction between securities purchased through the facilities of the TSX and those purchased on other exchanges or alternative trading systems (ATSs). Issuers and their buying brokers making purchases on ATSs or any other marketplace must satisfy themselves that they are properly relying on, and in compliance with, an exemption from the issuer bid rules under applicable securities laws. In particular, under the Securities Act (Ontario) and under Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids, separate exemptions from the issuer bid rules are found for purchases made through the facilities of a “designated exchange”, which includes the TSX, and for purchases made on a “published market”, which would generally include an ATS, and the requirements of these exemptions differ. The Staff Notice further reminds issuers that they must properly disclose in their notice to the TSX and press release where securities are being purchased, including that purchases may be made on ATSs, if applicable. Where an issuer has publicly disclosed that NCIB purchases will only be made through the facilities of the TSX, the issuer should ensure that its buying broker is aware of the limitation, particularly as many brokers may use smart order routers which direct purchases to multiple marketplaces. Purchases made on other marketplaces and ATSs will not be subject to TSX rules. However, such securities will be included for the purposes of calculating an issuer’s annual NCIB limit under the TSX rules.

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Revisiting Selected Public M&A Deal Points: A Cross-Border Comparison

The Market Trends Subcommittee of the Mergers and Acquisitions Committee of the Business Law Section of the American Bar Association recently released its latest edition of (i) the Strategic Buyer/Public Target M&A Deal Points Study which analyses acquisitions of US publicly-traded targets announced in 2014 and (ii) the Canadian Public Target M&A Deal Points Study which analyses acquisitions of Canadian publicly-traded targets announced in 2013 and 2014.  Our colleagues on CanadianM& have highlighted key findings of these studies with respect to material adverse changes, dissent/appraisal rights, no-shop and go shop provisions and superior proposal and match rights, among other types of provisions in public M&A acquisition agreements.  For further details please see our post on CanadianM&

CSA provide updated guidance on non-GAAP financial measures

The Canadian Securities Administrators (CSA) have provided revised guidance on the use of non-GAAP financial measures aimed at ensuring that information disclosure by issuers does not mislead investors. An updated version of CSA Staff Notice 52-306 (Revised) Non-GAAP Financial Measures (Notice 52-306) was published on January 14, 2016 reflecting amendments to IAS 1 Presentation of Financial Statements (IAS 1) regarding additional subtotals presented in financial statements.

Notably, Notice 52-306 recognizes that an issuer’s GAAP may require the presentation of additional subtotals in the financial statements when such presentation is relevant to an understanding of the issuer’s financial position or financial performance as, for example, may be required by paragraphs 55 and 85 of IAS 1. Issuers who wish to include these additional subtotals in a press release or outside of the issuer’s financial statements before the financial statements are filed on SEDAR should explain the subtotals’ composition so as to avoid any confusion. Notice 52-306 states that this may be done by including a copy of the statement containing the additional subtotals or reconciling the additional subtotals to the most directly comparable line item specified or defined by IFRS that will be presented in financial statements.  Issuers should also comply with the requirements found in IAS 1 applicable to additional subtotals presented in the statement of financial position and statement of profit or loss and other comprehensive income.

As before, Notice 52-306 includes, among other things, specific guidance to issuers regarding additional GAAP measures required by IFRS and a list of suggested practices to help issuers address obligations in relation to additional GAAP measures. Notice 52-306 was last updated on February 17, 2012.

New offering memorandum exemption increases access to capital markets in Ontario

Casey Howell and Charlie McDonald -

Effective January 13, 2016, issuers in Ontario will be able to take advantage of a new prospectus exemption permitting for investments from a wider range of investors through the use of an offering memorandum (the OM Exemption). This new OM Exemption is designed to facilitate capital-raising by allowing for investments from a wider range of investors than under other exemptions such as the existing accredited investor or the family, friends and business associates exemptions.

Securities administrators in Alberta, New Brunswick, Nova Scotia, Quebec and Saskatchewan have also agreed to implement amendments to their existing offering memorandum exemption under section 2.9 of National Instrument 45-106 Prospectus Exemptions such that the new OM Exemption will be substantially harmonized across Ontario and each of these provinces. The necessary amendments in these other provinces are scheduled to come into force on April 30, 2016. 

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Requirements under controversial Canadian Bill C-377 waived relieving investment funds of potentially costly reporting requirements

Jonathan Willson and Kathleen Elhatton-Lake -

The Minister of National Revenue has waived reporting requirements under Bill C-377 for periods through 2016. The new Liberal government has also indicated that it intends to repeal Bill C-377, presumably at some point in 2016.

As we previously reported, Bill C-377, a private member’s bill that is intended to mandate disclosure of union financial activities which received Royal Assent last year, raised possible concerns about disclosure requirements for investment funds. Subject to certain exceptions, this controversial bill added a provision to the Income Tax Act (Canada) which will require “labour organizations” and “labour trusts” to provide extensive disclosure regarding their financial activities to the Canada Revenue Agency. Based on a literal interpretation of the “labour trust” definition in Bill C-377, any investment fund in which a labour organization has made a financial investment could be subject to these rules. Similarly, the “labour trust” definition could also capture any investment fund in which a member of a labour organization holds an interest. While it is unlikely that the definition of labour trust (and by extension, the legislation as whole) was intended to apply so broadly, the wording of the definition makes it difficult to interpret the legislation in a more circumspect manner.

The Liberal government’s recent indications represent welcome relief for investment funds from potentially costly and onerous reporting obligations.