Board Diversity Series: Results of Canadian initiatives for gender diversity on boards

Laura Levine and Anne Weintrop - 

In September 2016, certain members of the CSA released CSA Multilateral Staff Notice 58-308[i], a comprehensive survey of 677 issuers listed on the TSX that reviewed the impact of the mandatory disclosure requirements two years after their implementation.[ii] Some of the more notable results from the review include the following:

  • 55% of issuers had at least one woman on their board, a 6% increase over 2015;
  • 10% of issuers had added one or more women to their board in the past year, as compared to 15% reported in 2015;
  • 12% of the total board seats in the sample were occupied by women;
  • 59% of issuers that disclosed executive officer information had at least one woman in an executive officer position;
  • The utilities and retail industries had the fewest boards with no women on them at 18% and 21%, respectively, and the mining, oil and gas and technology industries had the most issuers with no women on their boards at 62%, 60% and 48%, respectively;
  • 21% of the issuers had adopted a policy on the identification and nomination of women directors as compared to 15% in 2015,
    • this rate was 22% for issuers with market capitalizations of $2-$10 billion and 25% for issuers with market capitalization of over $10 billion; and
  • 20% had adopted director term limits (of which 48% included age limits, 23% had tenure limits and 29% had both).
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ISS and Glass Lewis publish updates to voting policies for 2017 proxy season

 Katy Pitch and Martin Langlois - 

Institutional Shareholder Services (ISS) and Glass Lewis have updated their respective proxy voting guidelines for the upcoming 2017 shareholder meeting season. While Glass Lewis has published its fully updated 2017 Proxy Paper Guidelines, ISS has published a summary of its key updates and intends to release a complete set of updated policies in December 2016.

The following are significant highlights of the changes to ISS’ and Glass Lewis’ policies relevant to Canadian companies:

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CSA announces cyber security roundtable

The Canadian Securities Administrators (CSA) will hold a roundtable on February 27, 2017 to discuss issues related to cyber security and opportunities for greater collaboration, communication and coordination in the event of a cyber security incident. The announcement of the roundtable follows the CSA’s recent publication of CSA Staff Notice 11-332 Cyber Security which, as previously discussed, highlights the importance of cyber risks, promotes cyber security awareness, preparedness and resilience in Canadian capital markets, and communicates general expectations for market participants.

For further information, please see the CSA’s November 17, 2016 News Release.

Developments in gender diversity on Canadian boards

Ramandeep Grewal and Samantha Horn

In 2014, certain Canadian provinces joined the universe of other jurisdictions with a specific regulatory regime to attempt to improve the representation of women on corporate boards. In this article, we review the disclosure requirements implemented by the Ontario Securities Commission (OSC) and other Canadian securities regulators in 2014, discuss how the issue of board diversity has evolved in Canada since then, and identify some of the main themes that continue to emerge as part of the larger debate about board renewal. While there are differing views on these issues, it is clear that the representation of women on the boards is a multi-faceted and evolving issue: despite some progress to date, the research indicates that corporate Canada continues to lose women at high rates and that the representation of women on Canadian public company boards continues to lag behind other developed nations[i]. The resounding consensus from the Canadian Securities Administrators (CSA) and the likes of Catalyst and others is that there is much room for improvement in Canada, and important reasons why business, government, and industry leaders should take note and continue to provide the necessary impetus for the required change.

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OSC focuses on fintech as it enters into cooperation agreement with ASIC and announces other fintech-focused initiatives

The Ontario Securities Commission (OSC) recently entered into a cooperation agreement with the Australian Securities and Investment Commission (ASIC) that would allow for information sharing and other cooperation between the two securities regulators with respect to fintech regulation.  As part of the agreement, ASIC and the OSC will help innovative fintech businesses enter each other’s markets through a mutual referral arrangement. The overall purpose of this cooperation agreement is to “further the promotion of innovation in their respective markets”. 

This development follows a number of recent fintech-focused initiatives from the OSC.  OSC Dialogue 2016, which took place on November 2, 2016, focused on fintech regulation and featured discussions led by several leaders in the emerging fintech space, including Blythe Masters, CEO of Digital Asset Holdings, Randy Cass, Founder and CEO of Nest Wealth, and Joseph Lubin, Founder of ConsenSys and Ethereum.  Another measure that received considerable attention was the introduction of OSC Launchpad in October 2016.  OSC Launchpad is an initiative of the OSC that facilitates the ability of fintech start-ups to comply with securities regulation.  Finally, the OSC recently announced RegHackTO, the first hackathon by a securities regulator intended to enable developers and other experts to propose tech-focused solutions to emerging regulatory challenges.

Order Execution Only Services Guidance Published for Comment by IIROC

Firms offering order execution only services and activities will be interested in reviewing guidance published for comment by IIROC.  The proposed guidance represents an update of Member Regulation Notice MR-098 What Constitutes a “Recommendation”? Is a Suitability Determination Required Under Regulation 1300.1.  According to IIROC, since the publication of Member Regulation Notice MR-098 the order execution only business model has evolved significantly.

For further information, please see IIROC Notice 16-0251.  Comments on the proposed guidance are to be submitted to IIROC by December 19, 2016.

Phase 2 of IIROC transaction reporting for debt securities effective on November 1, 2016

The Investment Industry Regulatory Organization of Canada (IIROC) recently published an update on the implementation of transaction reporting for debt securities.   By way of Notice 16-0238 on October 17, 2016, IIROC advised dealer members that phase 2 implementation of Rule 2800C will become effective on November 1, 2016.  IIROC further advised dealer members that prior to November 1, all dealer members that transact in debt securities must complete the MTRS 2.0 Dealer Member Enrollment Form and obtain the applicable credentials.

Notably, phase 2 of the implementation of Rule 2800C will expand reporting obligations to all dealer members (which includes those that were not included as part of the phase 1 implementation).  Phase 2 will also expand the reporting obligations of dealer members included in the phase 1 implementation to include all foreign-currency denominated transactions.

For further information, please consult the Debt Securities Transaction Reporting MTRS 2.0 User Guide.

Modernizing the CBCA--aligning diversity and director election requirements

Laura Levine and Alethea Au -

Board and management diversity, director election processes and notice-and-access procedures are the key issues dealt with by proposed amendments to Canada’s corporate law that were recently introduced in the House of Commons by the federal government. Known as Bill C-25, the proposed amendments, if adopted, would make significant changes to the Canada Business Corporations Act (CBCA), the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act, as described below.


The proposed amendments support increased diversity for CBCA “distributing corporations” (generally, public companies) through the imposition of what is expected to be a “comply or explain” model. Under that approach, public companies would be required to disclose the gender composition of their boards and senior management and to describe their diversity policies (or, alternatively, explain why no such policies have been adopted). The regulations to the CBCA are also proposed to be amended to prescribe the actual disclosure that is required and will set out what will be considered to be “senior management” roles but will not define the concept of “diversity”. The amended regulations have yet to be made public. 

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Court of Appeal provides guidance for securities class actions

Alan D’Silva, Alexander Rose and David Spence - 

In the proposed $1 billion class action Rooney v. ArcelorMittal S.A., the Ontario Court of Appeal has clarified that security holders who sell their securities in the secondary market in connection with a take-over bid have no right to pursue an action for misrepresentation under Section 131(1) of the Securities Act (Ontario). The question was one of first impression before the Court. Consistent with the overriding policy objectives of the Securities Act, the Court confirmed that security holders who sell their securities in the secondary market cannot bypass the strict leave requirements, liability caps, and other elements of Part XXIII.1 included by the Legislature as part of the balance struck in creating statutory secondary market liability for misrepresentations.

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Canadian securities regulators publish capital markets guidance update on cyber security

Vanessa Coiteux and Laura Levine - 

Responding to the evolving cyber security landscape and the considerable increase in number of cyber-attacks, the Canadian Securities Administrators (CSA) has published CSA Staff Notice 11-332 Cyber Security (the 2016 Notice) as an update to CSA Staff Notice 11-326 Cyber Security published in September 2013. The 2016 Notice seeks to, among other things, highlight the importance of cyber risks, inform stakeholders about recent and upcoming CSA cyber related initiatives, promote cyber security awareness, preparedness and resilience in Canadian capital markets and communicate general expectations for market participants.

As we previously noted, cyber security was identified as a priority in the CSA 2016-2019 Business Plan. In the coming months, CSA members intend to re-examine large issuers’ disclosure of cyber security risks and controls and, where appropriate, contact such issuers to get a better understanding of their assessment of the materiality of cyber security risks and cyber-attacks. On an ongoing basis, CSA members also intend to gather data about registered firms’ cyber security practices, and enhance cross-border information sharing between regulators related to cyber security. Furthermore, the CSA also intends to hold roundtable sessions to discuss cyber security issues and risks, regulatory expectations and the need for coordination. 

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Hedge fund investments survive section 94.1 challenge

Marianne Kennedy Beaulne - 

Although based in low-tax jurisdictions, Tax Court finds business reasons for investments overshadowed their tax benefits

Section 94.1 of the Income Tax Act (Canada) is an anti-avoidance rule aimed at attempts to divert investment income to an offshore entity in a low (or no) tax jurisdiction. In Gerbro Holdings Company v. The Queen [1] the Tax Court of Canada considered, for the first time, the application of this rule to investments in offshore hedge funds.[2]The Court concluded that the underlying assets of such funds may be “portfolio investments” for purposes of section 94.1, but the section did not apply in Gerbro because none of the main reasons for investing in the hedge funds was to defer or avoid Canadian taxes.

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New TSX dividend reinvestment plan rules adopted

The Toronto Stock Exchange (TSX) has adopted amendments to the TSX Company Manual (the Manual) intended to provide a complete set of standards and practices (the DRIP Rules) for dividend reinvestment plans (DRIPs). The amendments follow the TSX’s publication for comment of the proposed DRIP Rules earlier this year and represent a departure from the current process whereby DRIPs that provide for the issuance of securities from treasury are treated as additional listings of securities under the Manual.  

Among other things, the DRIP Rules would require a DRIP and any amendments thereto, to be pre-cleared with the TSX at least 5 days before the effective date, unless the DRIP provides for the payment of dividends or distributions solely with securities purchased on the secondary market. The TSX will require that the price per listed security at which securities will be issued pursuant to the DRIP not be lower than the 5-day VWAP of the securities on the TSX, less a 5% discount. In addition, the DRIP must permit all security holders to participate in the DRIP, other than holders residing outside of Canada, and provisions must be made for fractional security interests. In order to list additional securities under an existing DRIP, listed issuers must file a DRIP additional listing application with the TSX.  

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Rights offering amendments for TSXV issuers

Amendments to TSX Venture Exchange (TSXV) Policy 4.5 – Rights Offerings are now in effect reflecting guidance released by the TSXV earlier this year following the adoption by the Canadian Securities Administrators (the CSA) of amendments relating to rights offerings in Canada in December 2015. Notably, while CSA review and approval of a rights offering circular is no longer required under Canadian securities laws, the TSXV will still require the pre-clearance of the circular under its Policy 4.5. Rights offering documentation should be filed in draft form with the TSXV prior to finalization in order to provide sufficient time for the TSXV to review the pricing, mechanics and timing of the rights offering and maintain an orderly market for the trading of the listed securities and rights.

A number of other substantive amendments were made to Policy 4.5:

  • The minimum subscription price for securities acquired on the exercise of rights has been lowered to $0.01 from $0.05.
  • Deficiencies in rights offering documents must be resolved at least five trading days prior to the record date as opposed to seven.
  • Rights are no longer required to be listed on the TSXV, but may be at the option of the issuer; however rights must be transferable.
  • Shareholder approval of any new control person (20% holder) resulting from a stand-by commitment for a rights offering will not be required provided that the rights are listed on the TSXV and the subscription price for a right is at a significant discount to the market price.
  • Fractional rights may be issued; however the number of rights required to purchase a security must be a whole number.
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T+2 settlement prompts proposed amendments to NI 24-101 and publication of consultation paper

The migration to a standard T+2 settlement cycle on September 5, 2017 is part of the impetus for amendments proposed by the Canadian Securities Administrators (CSA) to National Instrument 24-101 Institutional Trade Matching and Settlement (NI 24-101) and Companion Policy 24-101 Institutional Trade Matching and Settlement.  In addition to these proposed amendments, the CSA has published CSA Consultation Paper 24-402 Policy Considerations for Enhancing Settlement Discipline in a T+2 Settlement Cycle Environment(Consultation Paper 24-402).

While NI 24-101 does not mandate T+3 settlement and does not prevent T+2 settlement, the proposed amendments are intended to facilitate the move to a T+2 settlement cycle.  They are also intended to reform NI 24-101 to reflect developments that have occurred since it came into force in 2007 (such as the rise in ETF trading) and to revise the requirements applicable to matching service utility systems and business continuity planning.

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Common Reporting Standard legislative proposals published in Canada

Roanne C. Bratz -

On July 29, 2016, the Department of Finance Canada released for public comment a package of draft legislative proposals and explanatory notes relating to a number of measures announced in the 2016 federal budget, which included, amongst other proposals, the introduction of a Common Reporting Standard penalty and relating consequential amendments to the Income Tax Act (the ITA).

Specifically, the proposed amendments will incorporate new section 281 into the ITA and will require that a “reportable person” must provide its taxpayer identification number, or “TIN” (the number used by the Minister of National Revenue to identify an individual or entity), to any person required to make an information return under the Common Reporting Standard (CRS) to be implemented in Canada as of July 1, 2017.  This section also empowers the Minister of National Revenue to assess a $500 penalty against any reportable person for each failure to provide its TIN upon request.

For CRS purposes, the term “reportable person” generally refers to a natural person or entity that is resident in a reportable jurisdiction (excluding Canada and the United States) under the tax laws of that jurisdiction, or an estate of an individual who was a resident of a reportable jurisdiction under the tax laws of that jurisdiction immediately before death, other than: (i) a corporation the stock of which is regularly traded on one or more established securities markets; (ii) any corporation that is a related entity of a corporation described in clause (i); (iii) a governmental entity; (iv) an international organization; (v) a central bank; or (vi) a financial institution.  See definitional subsection ITA 270 (1).