Ontario, Manitoba and Quebec Adopt Useful Amendments to the Trade Reporting Rules

Margaret Grottenthaler and Alison Beer - 

The anticipated amendments to the rules on reporting derivatives data in Ontario, Quebec and Manitoba are expected to come into force on July 29, 2016.  Highlights of the final amendments to OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting; MSC Rule 91-507 Trade Repositories and Derivatives Data Reporting include:

  • Exempting inter-affiliate trades from reporting (and not just those between “local” counterparties)
  • Pushing back the effective date for requiring trade repositories to publicly report derivatives data to January 16, 2017
  • Simplifying the timing convention used for releasing derivatives data publicly: it’s now 48 hours after execution of the trade
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Changes to private placement reports of trade soon in force

A new harmonized Form 45-106F1 Report of Exempt Distribution (the New Report) will come into effect on June 30, 2016 in all Canadian provinces and territories. Announced by the Canadian Securities Administrators (the CSA) on April 7, 2016 in CSA Notice of Amendments to National Instrument 45-106 Prospectus Exemptions relating to Reports of Exempt Distribution, the New Report is intended to reduce the compliance burden for issuers and underwriters, and to provide securities regulators with information necessary to facilitate more effective regulatory oversight of the exempt market.

Heightened disclosure requirements

The New Report will have heightened disclosure requirements. All issuers will be required to disclose, among other things:

  • the type of securities being distributed using a new 3-letter code; and
  • specific details about the prospectus exemption relied upon, including how each purchaser qualifies for certain exemptions, including the “accredited investor” exemption, for example. 
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Insider trading prohibition to be broadened

The Securities Act (Ontario) (OSA) is expected to be amended to include a prohibition on recommending the purchase or sale of securities of an issuer where the person or company making the recommendation is in a “special relationship” with the issuer and has knowledge of a material fact or material change with respect to such issuer that has not been generally disclosed. Currently, section 76 of the OSA provides that a person in a “special relationship” with the issuer includes:

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IIROC again extends deadline to comply with personal financial dealings rule

On May 10, 2016, the Investment Industry Regulatory Organization of Canada (IIROC) announced that it is extending the deadline for unwinding existing trustee, executorship and power of attorney arrangements prescribed by Dealer Member Rule 43.2(5)(i) to 180 days after the implementation of the final amendments to unwind existing arrangements, unless provided at the time the amendments are finalized.  IIROC previously required such amendments to be unwound by September 13, 2016.

For further information, please see IIROC Notice 16-0100 Personal Financial Dealings with Clients and our previous post on the subject.

Securities Act will soon include whistleblower protections

Employees in Ontario can soon expect to be protected from anti-retaliatory measures in connection with whistleblowing activities. As part of the Ontario Budget Measures Bill 173,which received royal assent on April 19, 2016, the Ontario government has approved amendments to the Securities Act (Ontario) (OSA) that are intended to implement protection for reprisals against employees who provide information about a possible contravention of Ontario securities law, or a by-law or other regulatory instrument of a recognized self-regulatory organization (SRO), or who are involved in an investigation or proceeding related to the information provided. 

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Consultation Draft #2 of the Capital Markets Stability Act Loses Weight

Margaret Grottenthaler -

The revised consultation draft of the federal Capital Markets Stability Act (CMSA) significantly scales back jurisdiction over market infrastructure and participants from the prior draft published in the fall of 2014 (see our previous post). The purposes of the CMSA continue – albeit in this newly slimmed-down form – to be to ensure the stability of Canada’s financial system through the management of certain types of systemic risk and to protect capital markets investors and others from “financial crimes”.

This post will review the main features of this new version of the CMSA as they relate to derivatives markets. Comments are due by July 6, 2016. 

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Take-over bid regime and early warning system amendments receive ministerial approval in Ontario

Amendments to the take-over bid and early warning reporting regimes announced earlier this year have received ministerial approval and come into force today, May 9, 2016, as discussed here and here. The amendments, which were approved by the Ontario Minister of Finance on March 31, 2016, include, among other things, the adoption in Ontario of National Instrument 62-104 Take-Over Bids and Issuer Bids, the repeal of OSC Rule 62-504 Take-Over Bids and Issuer Bids, amendments to National Instrument 62-103 Early Warning System and Related Take-Over Bids and Insider Reporting Issues and related amendments to the Securities Act (Ontario) (OSA).   The related amendments to the OSA, as included in Schedule 18 of the Budget Measures Act, 2015 (Ontario), also come into force today, as proclaimed by the Lieutenant Governor of Ontario.

For further information, please see Notice of Ministerial Approval of Amendments to Take-Over Bid Regime and Early Warning System.

TSX addresses dividend reinvestment plans in proposed amendments

The Toronto Stock Exchange (TSX) has proposed new standards and practices applicable to dividend reinvestment plans (DRIPs). The proposed Section 617.1 of the TSX Company Manual (the Manual), which is intended to provide greater transparency and a more efficient process for issuers adopting DRIPs, would require, among other things, that a DRIP, and any amendments to a DRIP, be pre-cleared with the TSX. Section 617.1 would also require that the price at which securities can be issued under a DRIP be no less than the market price of the security, less a 5% discount.

Currently, the Manual does not contain specific requirements relating to DRIPs. Instead, the TSX has relied on the additional listing requirements of the Manual where a DRIP provides for the issuance of securities from treasury. The proposed amendments to the Manual, including Section 617.1 and other related consequential amendments, are being published for a thirty-day comment period which expires May 28, 2016. For further information, please see Amendments to Toronto Stock Exchange Company Manual (April 28, 2016).

Revised consultation draft of the Capital Markets Stability Act published for comment

The Department of Finance has published a revised consultation draft of the Capital Markets Stability Act (CMSA) for comment. The proposed CMSA is the federal component of the Cooperative Capital Markets Regulatory System, which also includes the draft provincial-territorial Capital Markets Act published for comment earlier this year. The CMSA addresses national data collection, systemic risk related to capital markets and criminal enforcement. The revised consultation draft responds to stakeholder comments received during the initial consultation in August 2014, including the addition of a materiality threshold to the definition of systemic risk related to capital markets, enhanced regulatory coordination and amendments related to procedural fairness. The revised draft of the CMSA is open for comment until July 6, 2016.

For further information, please see Backgrounder: Capital Markets Stability Act – Draft for Consultation, Capital Markets Stability Act – Draft for Consultation, Commentary on the Capital Markets Stability Act and Statement on the Release of a Revised Consultation Draft of the Capital Markets Stability Act.

US District Court dismisses FATCA challenge

Roanne C. Bratz -

On April 25, 2016, the United States District Court for the Southern District of Ohio, Western Division, dismissed a challenge that had been brought  by United States Senator Rand Paul and several other plaintiffs in Crawford, No. 3:15-CV-00250 (S.D. Ohio 4/26/16) that had sought a declaratory and injunctive relief against enforcement of the US Foreign Account Tax Compliance Act (FATCA), the Canadian, Czech, Israeli, French, Danish, and Swiss intergovernmental agreements (IGAs) entered into under FATCA, and the Report of Foreign Bank and Financial Accounts (FBAR) administered by the US Treasury’s Financial Crimes Enforcement Network (FinCEN).  We previously reported on an earlier related development.

Judge Thomas M. Rose granted a motion to dismiss in favour of the United States Department of the Treasury, the United States Internal Revenue Service and FinCEN, (collectively, the Defendants)  on the basis that the plaintiffs lacked standing to  institute the proceedings, with the result that the Court did not address the merits of the lawsuit.

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Regulation of fixed income market: the CSA issues an update

The Canadian Securities Administrators (CSA) recently published a staff notice describing the next steps in its plan to enhance the regulation of the fixed income market.  CSA Staff Notice 21-317 Next Steps in Implementation of a Plan to enhance Regulation of the Fixed Income Market (CSA Staff Notice 21-317) describes the CSA’s efforts in respect of: (i) increasing post-trade transparency for corporate debt securities; and (ii) evaluating access to the fixed income market.

The CSA provided stakeholders with an opportunity to comment on its plan to enhance the regulation of the fixed income market in September 2015 in CSA Staff Notice 21-315 Next Steps in Regulation and Transparency of the Fixed Income Market.The CSA received a number of comments on its plan and those comments and a summary of next steps are now provided in CSA Staff Notice 21-317.

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Additional Canadian securities regulators enter into MOU with CFTC

The securities regulators in New Brunswick (FCNB), Nova Scotia (NSSC) and Saskatchewan (FCAA) have announced that that they have signed counterparts to a Memorandum of Understanding (MOU) with the U.S. CFTC in regards to cooperation related to the supervision and oversight of entities that operate on a cross-border basis. As previously discussed,  the securities regulators in Ontario (OSC), Quebec (AMF), British Columbia (BCSC) and Alberta (ASC) initially signed the MOU on March 25, 2014 and Manitoba (MSC) signed a counterpart in October 2014. The MOU is intended to enhance the consultation, cooperation and exchange of information between the parties. For further information please see, the CSA’s April 27, 2016 press release

Progress made on the TSXV revitalization plan

Simon Romano and Tracy Chen -

In a recent progress report (the Report), the TSX Venture Exchange (TSXV) has provided an update to the initiatives outlined in its December 2015 white paper which detailed a revitalization plan for the exchange. The Report was released following a series of town hall meetings hosted by the TSXV.

In addressing the TSXV’s commitment to reducing clients’ administrative and compliance costs, the TSXV has, among other things, made automated online filings available for private placement transactions and it is expected that additional online filings and electronic payments will be developed. In addition, policy revisions with respect to the TSXV’s sponsorship and shareholder approval requirements are expected to be filed with the regulators for approval in the first half of 2016. Relatedly, one of the revisions that will be filed for approval, which was first announced in a TSXV Bulletin dated March 30, 2015, is the waiver in certain circumstances of the shareholder approval requirement for reverse takeovers and changes of business provided certain conditions are met.

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Enrollment opened under the Extractive Sector Transparency Measures Act

Keith Chatwin, Ivan Grbesic and Christopher Yung -

Natural Resources Canada (NRCAN) has opened the enrollment process for companies who meet the definition of a “Reporting Entity” under the Extractive Sector Transparency Measures Act (ESTMA). Reporting Entities can enrol by downloading a “reporting entity contact form” (available here) which must be completed and submitted prior to submitting an ESTMA report. Upon enrollment, Reporting Entities will receive an ID Number and notification of new information published on NRCAN’s website.

Enrollment is not required until the initial ESTMA reports are due; however, NRCAN is encouraging early enrolment. Annual reports under ESTMA are due 150 days after a Reporting Entity’s financial year end, beginning with financial years commencing after June 1, 2015. As an example, companies with a December 31 year-end will be required to submit their first annual report by May 30, 2017. Reporting of payments made to aboriginal governments or entities is deferred for a two-year period until June 1, 2017. 

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Statutory best interest standard: summer reading

Darin Renton -

In a manner often reserved for best-selling novels and blockbuster movies, the Canadian Securities Administrators (CSA) recently issued advance notice of the upcoming publication of CSA Consultation Paper 33-404 – Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients (Consultation Paper) expected in late April 2016.  CSA Staff Notice 33-317 Next Steps in the CSA’s Work to Enhance the Obligations of Advisers, Dealers and Representatives Toward Their Clients states that regulatory action is required: the CSA will be seeking comment on specific proposals to enhance the obligations of registrants towards their clients.  The comment period will run for a period of 120 days, extending through the summer holiday season. 

This marks the reactivation of the comment process on the proposal for a statutory best interest standard that the CSA signalled in its December 17, 2013 status report following consultation on CSA Consultation Paper 33-403 (Prior Consultation Paper).   In the Prior Consultation Paper, the CSA proposed for comment the standard that every adviser and dealer (and each of their representatives) that provides advice to a retail client with respect to investing in, buying or selling securities or derivatives shall, when providing such advice,

(a) act in the best interests of the retail client, and

(b) exercise the degree of care, diligence and skill that a reasonably prudent person or company would exercise in the circumstances.

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