Quebec Derivatives Blanket Exemption - Revocation postponed by nine months

Alix d’Anglejan-Chatillon and Ken Ottenbreit - 

The Autorité des marchés financiers (AMF), Quebec's financial services regulator, published Decision No. 2015-PDG-0132 (the Extension Decision) yesterday (August 27, 2015).  The Extension Decision (released in French only) postpones the effective date of the revocation of the so-called blanket derivatives exemption under the Quebec Derivatives Act (QDA) (the Blanket Decision) by nine months, from September 5, 2015 to June 5, 2016. 

The Extension Decision will be particularly welcome news for foreign futures commission merchants (FCMs) which have been trading foreign and MX listed futures for Quebec institutional clients on the basis of various exemptions for a number of years and faced the prospect of having to shut down that business by September 4th.    Buy-side institutional clients in the Quebec market will also have more breathing room to adapt their futures trading arrangements in light of decisions made by foreign FCMs to seek derivatives dealer registration in Quebec or discretionary exemptive relief, or to discontinue their current futures trading business in Quebec.

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IIROC releases finalized Guidance on Marketplace Thresholds

 The Investment Industry Regulatory Organization of Canada (IIROC) has released its finalized Guidance on Marketplace Thresholds. As discussed in our 2014 post on the draft version, the Guidance is intended to promote stable markets by controlling short-term price volatility and catching erroneous orders before they can be completed.

The primary effect of the Guidance, which is to take effect on August 25, 2016, is to limit the amount by which the price to be paid in a trade in a security may vary from (a) the price paid in the most recent trade in that same security on that day (defined as the “national last sale price”) and (b) the national last sale price as it stood at the most recent one-minute interval (defined as the “one minute reference price”). The threshold level depends largely on the price of the security and generally ranges between 10% and 20%, with the exception of securities trading between $1 and $5 (30%), between 50 cents and $1 (50%) and below 50 cents (300%). Notwithstanding these limits, securities subject to Single Security Circuit Breakers (SSCBs) are subject to a 10% limit in all cases, as are Exchange-Traded Funds (ETFs). Exchange-listed debt is subject to a 20% limit in all cases.

Each marketplace governed by IIROC must adopt the thresholds, which incorporate nuances and exceptions beyond those indicated in the abbreviated summary that we have just provided. IIROC notes that enforcement actions may still be taken with respect to trades that fall within the thresholds, where appropriate. Finally, while IIROC has decided that it is impractical to attempt to implement volume controls as part of the Marketplace Thresholds, the Guidance notes that under NI 23-103 a market may introduce volume controls as part of its risk management and supervisory authority.

IIROC releases annual report

The Investment Industry Regulatory Organization of Canada (IIROC) has just released its 2014-15 Annual Report. As the accompanying news release indicates, the 56-page report  recaps a number of important achievements during the period, including the following:

  • Finalization of the Debt Transaction Reporting Rule, which allows for better regulatory oversight of Canadian debt markets;
  • Research on the effectiveness of know-your-client policies;
  • Continuing to focus on high-quality empirical research on the impact of High Frequency Trading and similar activities in Canada’s marketplace;
  • Approval of the last set of Client Relationship Model(CRM) reforms, which will be implemented over the coming years;
  • Initiation of a strategic planning process to flag emerging issues and develop priorities and strategies moving forward; and
  • Publishing of final guidance outlining common due diligence practices and suggestions for IIROC regulated firms involved as underwriters in the offering of securities to the public.

Among other interesting statistics, the report notes that in 2014-15 IIROC oversaw 187 members (and more than 28,000 approved persons) while monitoring 431 million trades and effecting 1,259 trading halts, 99 cease-trades, 13 single stock circuit breakers, 42 trade variations or cancellations, 22 suspensions and 10 permanent bans.

Canada seeks consultation on Extractive Sector Transparency Measures Act implementation tools

Keith Chatwin, Ivan Grbesic and Christopher Yung

On August 12, 2015, Natural Resources Canada (NRCAN) posted a notice on its website seeking public input on draft implementation tools (Implementation Tools) it has developed in respect of the Extractive Sector Transparency Measures Act (the Act). As described in our previous blog entries (here and here), the stated purpose of the Act is to foster better transparency to ensure that resource extractive industries support proper development in the countries where they operate, while at the same time making it harder to conceal illicit payments.


The Act was proclaimed into force on June 1, 2015, but as we have previously noted precise guidance on the underlying disclosure obligations has been lacking. It was hoped that regulations enacted under the Act would put meat on the legislative skeleton and provide much needed regulatory certainty. Instead, NRCAN has introduced the Implementation Tools as a practical and illustrative alternative. The Implementation Tools do not constitute prescriptive guidance with the force of law, however.

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Proposed amendments to OSC Rule 48-501 will automatically exempt application to exchange traded funds

The Ontario Securities Commission (OSC) announced last week that OSC Rule 48-501 Trading during Distributions, Formal Bids and Share Exchange Transactionswill be amended to remove the requirement that an exchange traded fund (ETF) be designated  in order for trading in units of the ETF to be exempted from the provisions of OSC Rule 48-501.  The amendments are expected to come into force on November 2, 2015.

OSC Rule 48-501 is intended to restrict trading activities to prevent manipulative conduct by persons with an interest in the outcome of certain market transactions.  Prior to these amendments, an ETF was not subject to these restrictions so long as the OSC issued a designation order in respect of such ETF.  According to the OSC, there have been no instances of manipulative or deceptive trading during a distribution of ETF units.  The OSC therefore concluded that the burden imposed by the requirement outweighs the benefit intended by the provision.  The amendments are intended to harmonize OSC Rule 48-501 with the Universal Market Integrity Rules, which were similarly amended in 2010.

For further information, please see the OSC notice of amendment.

AMF revokes Quebec derivatives exemption and issues limited guidance on registration matters - market participants advised to take urgent action

Alix d’Anglejan-Chatillon -

The Autorité des marchés financiers (AMF), Quebec's financial services regulator, has issued a notice to firms which can no longer rely on the so-called blanket derivatives exemption under the Quebec Derivatives Act (QDA) that it expects applications for derivatives dealer registration and SRO membership to be submitted by September 4, 2015 i.e., prior to revocation effective September 5 of the AMF’s blanket derivatives exemption.

As previously noted, Canadian and foreign market participants (including U.S. and other non-Canadian FCMs) which have relied on this exemption should be taking urgent action to review their current derivatives markets activities in Quebec and determine whether to register under the QDA, whether any other statutory relief may be available, whether there may be a basis to apply for focused discretionary relief under the QDA and whether any current client arrangements with Quebec counterparties should be discontinued by the September 5, 2015 deadline. 

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Expanded private placement reporting proposed

On August 13, 2015, the Canadian Securities Administrators (CSA) published proposed amendments (the Proposed Amendments) to the form for reporting prospectus exempt distributions of securities in Canada.  The proposal follows initial proposals on the same subject published in February 2014 and March 2014.

Notably, while the Proposed Amendments would again harmonize reporting across all jurisdictions in Canada, harmonization is achieved at the expense of broader disclosure.  Among others, the proposed disclosure requirements include detailed information on directors, executive officers, control persons and promoters (for certain types of issuers) and the identities of persons being compensated as a result of the distribution, as well as other significant changes for investment funds.

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MFDA proposes proficiency standard for selling ETFs

Darin Renton

On July 22, 2015, the Mutual Fund Dealers Association of Canada (MFDA) published a consultation document proposing individual proficiency standards for Approved Persons selling Exchange Traded Funds (ETFs).  The proposal is made in conjunction with proposed amendments announced in June 2015 with respect to MFDA Rule 1.2, which we previously wrote about.

The MFDA’s proposed Rule 1.2.3 would prohibit an Approved Person from performing an activity that requires registration unless the person has the required education, training and experience, in accordance with section 3.4 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

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Analysis of expert recommendations on reforming Ontario business law published on our M&A law blog

Our readers will be interested in a post on our M&A law blog on proposed reforms to modernize Ontario’s business environment.  The post highlights the recommendations of a 13-member expert panel of legal practitioners and academics which include: amendments to the Ontario Business Corporations Act; reducing the potential for limited partner liability among Ontario LPs; amendments to the Personal Property Security Act to permit cash as collateral to be perfected by control as opposed to registration; and repealing the Bulk Sales Act.  For details, please see Modernizing Ontario’s Business Law: Expert Panel Releases its “Wish List”.

OECD Common Reporting Standard to come into effect in Canada on July 1, 2017

Darin Renton and Junaid Subhan

Canadian financial institutions will be subject to the Organisation for Economic Co-operation and Development’s (OECD) Common Reporting Standard as of July 1, 2017 with the first exchanges of financial account information beginning in 2018.  The CRS, known formally as the Standard for Automatic Exchange of Financial Account Information in Tax Matters, was developed by the OECD and approved in July 2014 as a global standard for the automatic exchange of financial account information.  Over 90 jurisdictions have undertaken to join the CRS, which is intended to address tax evasion and to improve international tax compliance.

The CRS will require the Canada Revenue Agency (CRA) to provide information to foreign tax authorities about accounts held in Canada by residents of their jurisdictions.  Consequently, Canadian financial institutions will be required to identify accounts held by non-Canadian residents and report certain information pertaining to these accounts to the CRA.  The CRS is based on the US Foreign Account Tax Compliance Act (FATCA).  It would therefore allow Canadian financial institutions to base CRS compliance partially on existing FATCA compliance procedures.  However, it is expected that the volume of data that would be reported under CRS would be significantly greater than that reported under FATCA.

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Analysis on Quebec mining, oil and gas transparency measures bill published on our mining blog

Many of our readers will be interested in a post by our colleagues on our mining law blog which provides an overview of Quebec’s proposal on the regulation of mining, oil and gas companies with respect to payments in the course of exploration and development activities under Bill 55 An Act respecting transparency measures in the mining, oil and gas industries.  The post also includes an analysis in light of the Federal government’s  Extractive Sector Transparency Act which we’ve previously written about.

Fees and expenses prospectus disclosure featured in most recent OSC Investment Funds Practitioner

Darin Renton

The Ontario Securities Commission (OSC) published the most recent edition of The Investment Funds Practitioner on July 23, 2015.  This edition of The Investment Funds Practitioner features guidance on the OSC’s prospectus review priorities, including with respect to disclosure of fees and expenses; default mutual fund distributions with respect to fixed rate distribution securities and disclosure of Independent Review Committee compensation.

Prospectus Reviews

The OSC noted that in its prospectus reviews of investment funds, it would focus on three key areas of disclosure.  First, OSC staff will focus on fees and expenses disclosure.  In particular, a summary of all applicable fees and expenses and plain language explanations of fees and expenses would have to be provided to enable investors to understand what each fee is for and what services or activities the fee covers.  Fees and expenses would also have to be disclosed in a sufficiently clear manner to allow OSC staff to determine that there is no duplication of fees and expenses and whether the overall cost of the investment fund is similar to comparable funds.

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OSC publishes policy reformulation table of concordance and list of new instruments

The Ontario Securities Commission recently revised OSC Staff Notice 11-739 Policy Reformulation Table of Concordance and List of New Instruments.  The revised table provides stakeholders with an overview of the status of various securities law instruments including their status as either having been published for comment, having received commission approval, having received ministerial approval or having been published.

For further information, please see OSC Staff Notice 11-739.

Can in-house counsel be summoned by the AMF to testify in an investigation?

Frédéric Paré -

The Supreme Court of Canada denied leave to appeal with respect to the 2014 Quebec Court of Appeal decision requiring in-house counsel to attend an Autorité des Marchés Financiers (AMF) investigation into her employer’s trades.

By refusing leave to appeal, the Supreme Court of Canada confirms the Quebec Court of Appeal’s decision in Autorité des marchés financiers c. X that recognized the validity of a subpoena issued to an in-house counsel (Me X) ordering her to testify on facts in the context of an AMF investigation into Me X’s employer and a confidentiality order with respect to the investigation.  The challenge, based in substance upon the application of solicitor-client privilege, was considered premature given the absence of evidence that the AMF had asked, or was going to ask, Me X to disclose privileged information.  This decision does not affect the scope of in-house counsel’s solicitor-client privilege as such privilege can, and very often does, apply to communications (depending on their nature) between employers and their in-house counsel.  Nor does this decision prevent Me X from objecting to specific disclosure to the AMF later on the basis of such privilege. Given this ruling, the involvement of external counsel early on when such an investigation is launched, or expected to be launched, would be well advised.

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OSC publishes Corporate Finance Branch Annual Report for 2014-2015

The Ontario Securities Commission (OSC) recently published OSC Staff Notice 51-725 Corporate Finance Branch 2014-2015 Annual Report.  The report provides an overview of the OSC Corporate Finance Branch’s operational and policy work over the course of the fiscal year ended March 31, 2015 and provides helpful guidance to market participants.

The OSC reviewed roughly the same number of prospectuses in fiscal 2014 as they did in fiscal 2015.  However, two new industries accounted for an increasing share of the OSC’s prospectus reviews: medical marijuana and gaming.  OSC staff found that reporting issuers in these industries required enhanced disclosure as a result of certain novel considerations that ought to be disclosed to investors including regulation and differences in legal status across jurisdictions.  The OSC also noted that they received the first IPO prospectus filed by a special purpose acquisition corporation in fiscal 2015 and that four SPAC IPO prospectuses have been filed to date.  We discussed SPACs in a prior post and note that Stikeman Elliott LLP is the only law firm to have acted as legal advisors on all four Canadian SPACs filed to date.

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