Institutional Shareholder Services releases proxy voting guidelines for 2016 meetings

Katy Pitch, Martin Langlois and Benoît Dubord -

On November 20, 2015, Institutional Shareholder Services (ISS) released its 2016 Americas Proxy Voting Guidelines Updates (the Guidelines) for meetings held in 2016. The Guidelines are a product of ISS’ 2015 global policy survey, which solicited the views of investors, companies, and other interested parties with respect to corporate governance issues. Among the topics considered are director overboarding, proxy access, compensation programs and compensation disclosure at externally-managed issuers. As noted below, ISS intends to provide additional information in a "Frequently Asked Questions" document that will be released in December.

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BCSC decides Red Eagle poison pill case as take-over bid amendments loom

John Anderson

The British Columbia Securities Commission (BCSC) released its reasons in Re Red Eagle, 2015 BCSECCOM 401, in which it cease-traded a rights plan in the face of a hostile bid. As perhaps one of the last rights plan cases to be decided before the proposed amendments to Multilateral Instrument 62-104 – Take-Over Bids and Issuer Bids(MI 62-104) come into force, its conclusions regarding rights plans are not surprising and may be of limited relevance in the future. However, the reasons do set out some timeless principles in relation to the other issues the BCSC faced in this case.

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Conflict of interest guidance for captive EMDs published by CSA

Darin Renton -

The Canadian Securities Administrators (CSA) published CSA Staff Notice 31-343 Conflicts of Interest in Distributing Securities of Related or Connected Issuers (the Notice) on November 19, 2015. The Notice applies to “captive dealers” being firms registered solely as exempt market dealers (EMD) that distribute securities of related or connected issuers with common mind and management. The guidance is not directed at firms that have more than one category of registration, such as portfolio managers and investment fund managers that also have an EMD registration.

The guidance is meant to address CSA concerns that captive dealers are in a conflict of interest between their financial incentive to sell securities of the related or connected issuer and their regulatory obligations. To respond to such conflicts, captive dealers are encouraged to implement CSA procedures outlined in the Notice (or their own alternatives) including: developing policies and procedures that describe how they will identify and respond to conflicts of interest and a potentially onerous obligation of establishing an independent review committee to conduct a variety of tasks, including product due diligence. This committee is also expected to identify those products that pose too severe a conflict of interest to be distributed generally.

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Tax changes will affect only new stock options: Finance Minister Morneau

Many of our readers will be interested in a post on our M&A law blog about Finance Minister Bill Morneau’s announcement today regarding the taxation of stock options.  Minister Morneau publicly announced that any changes that the Canadian government makes with respect to the tax treatment of stock options will grandfather existing options.  For further information, please see our M&A law blog.

IIROC extends deadline to comply with personal financial dealings rule

On November 17, 2015, the Investment Industry Regulatory Organization of Canada (IIROC) announced that it was extending the deadline for unwinding existing trustee, executorship and power of attorney arrangements prescribed by Dealer Member Rule 43.2(5)(i) to September 13, 2016.  IIROC previously required such arrangements to be unwound by December 13, 2015.

IIROC states that the extension was granted because they are continuing to review comments in response to IIROC Notice 14-0103 which would: (i) narrow the prohibition relating to the assumption of control or authority positions such that it only applies to registered representatives and investment representatives; and (ii) provide an exemption to allow registered representatives and investment representatives to act as a non-Related Person’s trustee or executor, subject to certain conditions.

For further information, please see IIROC Notice 15-0256.

Amendments to Ontario Securities Act proposed regarding Crown immunity from derivatives regulation

 Margaret Grottenthaler

Proposed amendments to section 142(3) of the Securities Act Ontario provide that the rule-making power of the Ontario Securities Commission with respect to derivatives does not apply to derivatives traded by the federal, Ontario or other provincial Crowns. Nor will it apply to derivatives traded by agents of the Ontario Crown, if they are prescribed by the Lieutenant Governor in Council, although conditions may be imposed relating to the exception for such trades.  This immunity applies to rules mandating clearing of derivatives, registration requirements, trade data reporting, disclosure document requirements, trading requirements such as margin, collateral, clearing and settlement and capital, requirements that derivatives be traded on an exchange or alternative trading system and position limits.  However, the immunity does not extend to the power to impose record-keeping, reporting and transparency requirements.

The first reading of Bill 144, Budget Measures Act, 2015, took place on November 18, 2015.  The proposed amendments, which are set out in Schedule 18 of Bill 144, will come into force when the bill receives royal assent.

IRS Announces FATCA Registration System Updates

Roanne C. Bratz -

We recently reported that the U.S. Internal Revenue Service (IRS)had stated that it was in the process of updating  aspects of its Foreign Account Tax Compliance Act (FATCA) Foreign Financial Institution Registration system, and has now announced that as of November 16, 2015:

  1. new features have been added and are available on the IRS FATCA Online Registration System;
  2. revisions have been made to the FATCA Online Registration User Guide, the last publication of which was issued in October 2014; and
  3. a new revised IRS Form 8957 (Rev. October 2015),  FATCA Registration, has been released.

A summary of these  system updates can be found here.

OSC provides update and overview of exempt market developments

On November 5, 2015, the Ontario Securities Commission (OSC) published its Exempt Market Review to provide background on the status of various new prospectus exemptions that it has proposed.  The table below provides an overview of the status of these prospectus exemptions in Ontario as set out in the Exempt Market Review.

Prospectus Exemption


Existing security holder exemption

In force in Ontario since February 11, 2015

Friends, family and business associates exemption

In force in Ontario since May 5, 2015

Rights offering exemption

Expected to come into force in Ontario on December 8, 2015

Offering memorandum exemption

Expected to come into force in Ontario on January 13, 2016

Crowdfunding exemption

Expected to come into force in Ontario on January 25, 2016

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Raw data of women on boards study released

The securities regulatory authorities in Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Quebec, Saskatchewan and Yukon published last week the raw data underlying CSA Multilateral Staff Notice 58-307 Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices which was published on September 28, 2015.

The raw data was obtained from publicly available information filed on SEDAR and includes information about the corporate governance of 722 TSX-listed issuers, including the number of women on boards and in executive officer positions of those issuers, the issuers’ disclosure mechanisms and policies related to enhancing board diversity.

For further information, please consult the CSA news release.

Crowdfunding rules published by securities regulators in Ontario, Quebec and certain other provinces

The securities regulatory authorities in Manitoba, Ontario, Quebec, New Brunswick and Nova Scotia have published Multilateral Instrument 45-108 Crowdfunding (MI 45-108).  The rules include a crowdfunding prospectus exemption and a registration framework for funding portals. 

MI 45-108 is intended to facilitate online capital-raising activities by start-ups and small and medium-sized enterprises, subject, however, to certain investment limits on the part of both the issuer and the investor.  Issuers are required to prepare an offering document disclosing various particulars of an issuer and its business and are subject to liability for misrepresentations in the offering document.  Non-reporting issuers are required to provide investors with annual financial statements and a notice of use of proceeds.  In Ontario, New Brunswick and Nova Scotia, non-reporting issuers must also provide notice of a discontinuation of the issuer's business, a change in industry or a change of control.  Reporting issuers must comply with their usual continuous disclosure obligations.

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IIROC rule amendment to permit delivery of unaudited summary financial statements upon client request

Effective November 2, 2015, the Investment Industry Regulatory Organization of Canada (IIROC) Dealer Member Rule 1400 will be amended to permit a dealer member to provide a client with a summary statement of financial position under Dealer Member Rule 1400 on an unaudited basis.  The new standard summary statement of financial position will be generated by the dealer member using the Securities Industry Regulatory Financial Filings system and would be certified by the Chief Financial Officer of the dealer member.

The amendments are intended to address the concerns of independent auditors that they are no longer able to provide the required auditor’s report to clients of a dealer member without expanding the scope of their audit work beyond an IIROC Form 1 audit.

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Trade reporting rule amendments proposed in Manitoba, Ontario and Quebec

Margaret Grottenthaler -

The Manitoba Securities Commission (MSC), the Ontario Securities Commission (OSC) and the Quebec Autorité des marches financiers (AMF) published for comment proposed amendments to their rules on derivatives data reporting and the companion policies related thereto.  The securities commissions of these provinces, being the only provinces that have adopted a trade data reporting rule, have requested that any comments be submitted by February 3, 2016.

MSC Rule 91-507 Trade Repositories and Derivatives Data Reporting, OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting and Quebec Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting (collectively, the Trade Reporting Rules) are each proposed to be amended in order to achieve a number of objectives.

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IIROC dealer member rules related to optional use of TIMS or SPAN amended

The Ontario Securities Commission (OSC) approved proposed amendments to the Investment Industry Regulatory Organization of Canada (IIROC) Dealer Member Rule 100.10(k) Optional use of TIMS or SPAN.

The amendments relate to the optional use of TIMS or SPAN for margining Dealer Member firm account positions constituted exclusively of positions in derivatives at the Montreal Exchange.  The stated objective of the amendments is to harmonize IIROC Dealer Member Rule 100.10(K) with similar amendments proposed by the Montreal Exchange, which are related to changes by the Canadian Derivatives Clearing Corporation to address procyclicality of margin.  The amendments will be in force as of November 30, 2015.

For further information, please see the OSC Staff Notice of Commission Approval and IIROC Rules Notice 15-0249.

Changes to fee model proposed by the Alberta Securities Commission

The Alberta Securities Commission (ASC) has proposed significant amendments to its fee model.  One of the most notable changes resulting from the proposed amendments is a change from a fixed fee to a participation fee model, similar to the current arrangement in Ontario, for reporting issuers that is based on market capitalization.  However, investment funds that are subject to National Instrument 81-106 Investment Fund Continuous Disclosure will continue to pay a fixed fee.  Another notable proposed amendment is that fees based on proceeds will be eliminated for a distribution of securities or exempt distribution for reporting issuers (other than investment funds).

Registrants can also expect changes.  Fees for international dealers and international advisers will be introduced and there will be an increase in fees for initial registration and annual registration for registered firms and individuals.

According to the ASC, the proposed amendments to the fee model are expected to come into force on December 1, 2016.  Comments on the proposed amendments are due by January 18, 2016.  For further information, please consult the ASC Notice and Request for Comment regarding proposed amendments to ASC Rule 13-501 Fees.

IIROC re-publishes proposed amendments regarding investor awareness initiatives

The Investment Industry Regulatory Organization of Canada (IIROC) re-published proposed amendments to the IIROC Dealer Member Rules regarding investor awareness initiatives.

The proposed amendments are intended to raise public awareness of IIROC's role in capital markets oversight; educate investors about the benefits of dealing with IIROC-member firms and to help investors assess the regulatory status of firms and advisors.  The proposed amendments will require that the IIROC logo appear on client account statements, but not trade confirmations as was previously proposed.  In addition, the proposed amendments would require that IIROC's official brochure be provided to new retail clients.  Existing clients may be provided with a brochure upon request.  A hyperlink to IIROC's AdvisorReport, a searchable database providing background information on advisors, must also be included on certain pages of a dealer member's website.

The proposed amendments were materially revised from a prior version of the same proposed amendments published in 2011 and 2014.  For further information, please see IIROC Rules Notice 15-0248.