Canadian Securities Law : Canadian Securities Lawyer & Attorney : Stikeman Elliott Law Firm : Montreal, Ottawa, Calgary, Vancouver, Montreal, Toronto

The Ontario Securities Commission has announced that it will be hosting a roundtable discussion on June 11 to obtain input from investors regarding investing in small and medium sized enterprises and start-ups. As we discussed in December, the OSC is currently considering a number of new capital raising prospectus exemptions to address the desire among some in the investing community to increase access to capital for issuers and to increase investment opportunities. The comment period in respect of the OSC's most recent consultation paper on the subject ended on March 8. The topics for discussion at the roundtable, meanwhile, include crowdfunding, as well as the type of information investors would require in order to make investment decisions.

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As we discussed in a recent post, Ontario's recently-proposed budget bill would amend the Securities Act to tighten up provisions respecting insider trading.  In respect of commodities, section 59.1 of the Commodity Futures Act currently prohibits persons and companies from engaging in conduct that the person or company knows or reasonably ought to know (i) results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a commodity or contract; or (ii) perpetrates a fraud on any person or company.

Under the budget bill, a provision would be added to the section to also prohibit attempts to engage in such conduct. The bill is currently being considered by the Ontario legislature.

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Simon Romano -

As we discussed last week, the Ontario government recently released its 2013 budget plan, which included discussion of amending the Securities Act to clarify the statute's insider trading provisions. The text of the budget bill now provides further detail of the government's intentions. 

Among the proposed amendments to the Act would be a change to the definition of "person or company in a special relationship with the reporting issuer" in respect of those to whom the insider trading restrictions apply. Specifically, the definition would be expanded to include not only persons and companies associated with those proposing to make a take-over bid of a reporting issuer (as is currently the case), but also those associated with a party considering or evaluating whether to make a take-over bid. Similar changes to the wording respecting those considering or evaluating whether to engage in business or professional activities are also proposed. Thus, current provisions of the Act that prohibit persons or companies in a special relationship with a reporting issuer, and with knowledge of an undisclosed material fact or change, from trading in the issuer's securities would, subsequent to the amendments, also prohibit trading by those associated with a party considering or evaluating whether to make a take-over bid or become party to a similar transaction.

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The Ontario Securities Commission will be hosting two roundtables in June to discuss issues identified in the CSA Consultation Paper 33-403, which considers the imposition of a statutory fiduciary duty on advisers and dealers to act in the best interests of clients. Our own Ed Waitzer considered such international developments in a post of February 2011. A follow up panel discussion for investors and the industry will occur in July.

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The Ontario Securities Commission announced today that Ministerial approval has been received with respect to the prospectus rule amendments released earlier this year that are intended to clarify certain provisions, address gaps, streamline requirements and codify prospectus relief that has been granted in the past. Amendments to the requirements and related forms respecting scholarship plans, first announced in January, were also approved.

Most of the amendments come into force on May 14, 2013. Those regarding scholarship plans come into force on May 31.

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The Ontario Securities Commission announced yesterday that it will hold a policy hearing on June 17 to hear submissions from interested parties who submitted responses in response to its 2011 proposed enforcement initiatives. As we discussed in an October 2011 post, the OSC had proposed a number of measures, including no-enforcement action agreements and a no-contest settlement program. For more information on the OSC's 2011 proposals, see OSC Staff Notice 15-704.

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Ken Ottenbreit and Ralph Hipsher -

As we initially discussed in an earlier post, on April 23 the Canadian Securities Administrators issued a decision providing a specified group of dealers limited exemptive relief (the Relief) from certain disclosure requirements under Canadian securities laws otherwise applicable where a foreign prospectus or offering memorandum (a Foreign Offering Document) is delivered by a dealer to a Canadian “permitted client” in connection with a private placement of foreign securities in Canada.

While any efforts to streamline the disclosure requirements applicable to private placements into Canada are certainly welcome, the Relief has limitations and imposes specific compliance obligations. Although the Relief may be helpful in resolving some of the timing concerns associated with extending certain qualified foreign offerings to Canadian “permitted clients”, it also imposes a number of conditions and requirements that will require advance planning and monitoring to maintain eligibility and to ensure there are no time delays in the preparation and delivery of offering documents.

Among the significant conditions and requirements that may impede the usefulness of the Relief are the requirement to satisfy certain disclosure standards applicable to U.S. registered offerings, inter-syndicate restrictions applicable to dealers not qualified under the Relief, additional compliance obligations associated with the requisite client notice – return receipt requirement and the additional monthly reporting of transaction information to the Canadian securities regulators.

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Margaret Grottenthaler and Sumeet Thind -

As we discussed last month, the Canadian Securities Administrators Derivatives Committee recently published Consultation Paper 91-407 Derivatives: Registration, which contains regulatory proposals specific to the implementation of a registration regime for derivatives market participants in Canada. Under the Paper’s proposals, the imposition of “derivative-appropriate” registration requirements would be based on the type of activity conducted by derivative market participants regardless of the nature of the underlying asset.

The Committee developed the proposals in light of Canada’s G20 commitments to improve the regulation and oversight of OTC derivatives markets and with consideration of derivatives registration regimes in the U.S. and Europe. While the Committee also considered the existing securities regulatory framework, the proposed business triggers for derivatives registration and the requirements applicable to registrants would be substantially different than those applicable in the securities context, given the differences in the purpose of trading, the existence of risk-amplifying leverage in most categories of derivatives and the complexity of derivatives contracts.

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As we discussed earlier this year, the TSX Venture Exchange in January extended temporary relief from certain pricing requirements related to private placements. The TSX-V has now modified the relief and extended its application until August 31, 2013. 

Specifically, the requirement that at least 75% of the private placement must be subscribed for by parties that are not related to the issuer has been changed to permit up to $200,000 in gross proceeds to be raised from related parties without any arm's length component. In cases where more than an aggregate of $200,000 is to be raised from related parties, at least 75% of the additional amounts must come from parties not related to the issuer. The relief also clarifies that capital pool companies may not rely on the relief.

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The Ontario budget, released yesterday, contains some hints at upcoming changes to the Securities Act planned by the provincial government.

Specifically, according to the budget document, the government plans to propose legislative amendments to expand and clarify insider trading provisions, add new offences for attempted market manipulation and attempted fraud, update the early-warning reporting requirements to provide more transparency and, following consultations with the Ontario Securities Commission, if needed following current cases, suspend the operation of the secondary market civil liability limitation period while leave to proceed is being sought. Theresa Tedesco has more on the planned changes to the OSC’s regulatory authority in today’s Financial Post.

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Quentin Markin -

On December 31, 2012, the Toronto Stock Exchange made amendments to the Company Manual to require, among other things, that TSX listed issuers elect all directors annually. The TSX subsequently issued Staff Notice 2013-0001 on February 22, 2013 to remind listed issuers of the new obligations. The new Section 461 has now been in effect for approximately four months, and while the changes regarding majority voting policies have attracted greater attention for Canadian domiciled issuers (see our posts of October 4 and October 12, 2012), foreign issuers (particularly those from Australia), have been far greater impacted by the annual director election changes.

In Australia, directors are already elected on a “for” or “against” basis, and not on a “for” or “withhold” basis and therefore already have a majority voting “policy” in effect by operation of the Australian Corporations Act 2001. However, the constitution (or articles) for a Corporations Act 2001 company would typically require that 1/3 of the directors resign at each annual general meeting and be re-elected. This means it would take 3 years to turn over the entire board.

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Ken Ottenbreit -

On April 23, 2013, the Ontario Securities Commission issued an exemptive relief order exempting certain U.S. broker-dealers from having to provide certain stipulated “wrapper” disclosure in connection with specified private placements. Typically, when securities are offered to Canadian purchasers on a prospectus exempt basis and an offering document constituting an “offering memorandum” is provided, disclosure that is required to be included in the offering memorandum under Canadian securities laws is provided in a Canadian wrapper.

Under the Order, the OSC (on behalf of other Canadian regulators) has exempted the applicant dealers from the requirement to include certain prescribed disclosure relating to statutory rights of action and underwriting conflicts. Notably, the relief is only available if the purchaser is a “permitted client” (as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations), the securities are offered primarily in a foreign jurisdiction and (i) the issuer is incorporated, formed or created under the laws of a foreign jurisdiction, has its head office or principal executive office outside of Canada and is not a reporting issuer in Canada, or (ii) the securities are issued or guaranteed by a foreign government.

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The Canadian Securities Administrators today released the latest in a series of consultation papers considering the regulation of derivatives in Canada. Specifically, CSA Consultation Paper 91-407 considers the regulation of derivatives market participants through the implementation of a registration regime.

Under the recommended regime articulated by the paper, three categories of registration would be created, namely those of (i) derivatives dealers, being persons carrying on the business of trading in derivatives or holding themselves out to be carrying on that business; (ii) derivatives advisers, being those carrying on the business of advising others in respect of derivatives, or who hold themselves out to be in that business; and (iii) large derivative participants, being entities, other than derivatives dealers, that have a substantial aggregate derivatives exposure.

Those required to be registered under the proposed regime would then be subject to various requirements respecting such things as proficiency, solvency, honest dealing obligations, and gatekeeper and business conduct requirements in the case of derivatives dealers and advisers. Exemptions from registration requirements would also be available in certain circumstances. For example, clearing agencies would generally not have to register, and foreign derivatives advisers and dealers would be exempted from specific regulatory requirements where they are subject to equivalent requirements in their home jurisdictions.

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The Canadian Securities Administrators today released an oversight review report that reviews the performance of the Mutual Fund Dealers Association of Canada (MFDA) over the last few years. The report, which covers such topics as the MFDA's corporate governance, enforcement of members and policy-making procedures, ultimately concludes that the MFDA has met the terms and conditions of the applicable recognition orders granted by securities regulators. Areas identified for corrective action are also set out. According to the report, CSA Staff are generally satisfied with the MFDA's responses to stated concerns. 

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