Comment period on cooperative capital markets regime extended to December 8

Canadian jurisdictions participating in the cooperative capital markets regulator project announced today that the consultation period in respect of the draft Provincial Capital Markets Act (PCMA) and Capital Markets Stability Act (CMSA) has been extended to December 8, 2014. The comment period had been originally scheduled to end on November 7, 2014.

For more information on the proposed regime, see our posts on the infrastructure of the proposed new regime, the proposed provincial acts, and the effects of the proposals on derivatives regulation.


CCGG releases annual best practices for proxy circular disclosure

Kevin Smyth and Marshall Eidinger

Recently, the Canadian Coalition for Good Governance (CCGG) released its 2014 Best Practices for Proxy Circular Disclosure. The annual publication, which is intended to provide issuers with guidance on corporate governance and executive compensation disclosure, also includes a list of the CCGG's "Governance Gavel Awards" winners. In determining the winners, which this year includes Canadian Pacific Railway, Pembina Pipeline and Vermilion Energy, the CCGG considered the alignment between an issuer's governance practices and the recommended practices found in its publication Building High Performance Boards.

With respect to the review of disclosure practices, the publication sets out the CCGG’s expectations in respect of such issues as majority voting, director independence, board succession, director skills and education, risk management oversight, executive compensation and shareholder engagement, and provides a number of examples of actual disclosure the CCGG deems as “excellent”. Such disclosure included examples from Potash Corporation of Saskatchewan, ShawCor and Canadian Pacific Railway. 

The following is a summary of guidance provided by the CCGG.

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Amendments to Regulation 91-507 approved in Quebec

 Quebec's Regulation to amend Regulation 91-507 respecting Repositories and Derivatives Data Reporting has now received Ministerial approval. As we wrote last week, the amended regulation comes into force tomorrow.

Canadian rules on trade repositories and data reporting - Where we are on the eve of reporting

Margaret Grottenthaler -

The trade reporting rules of the securities regulatory authorities in Ontario, Manitoba and Quebec will require reporting beginning October 31. A number of changes to the rules have been made since they were first published in June 2013. On the eve of these rules coming into force, we thought it a good time to republish our article from earlier this year, but incorporating developments since then. Other provinces have still not announced any rules or instruments dealing with trade reporting, but rules are expected in the near future from many of them.

The OTC Derivatives Committee of the Canadian Securities Administrators published model provincial rules with respect to trade reporting for comment in December 2012 and Ontario, Quebec and Manitoba each published proposed harmonized rules in June 2013. The final rules in these three provinces came into force on December 31, 2013, but with staggered implementation of reporting obligations over the course of this following year and next. The initial reporting deadline of July 2, 2014 was extended in all three jurisdictions to October 31, 2014. There have also been further changes to the rules to limit dual reporting by incorporating the ISDA reporting logic. We will refer to Rule 91-507 (or in Quebec Regulation 91-507) as the TR Rule. At the end of this article you will find links to the amended TR Rules.

We have focused our comments on the data reporting and dissemination aspects of the rules.

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Legal Entity Identifiers required for derivatives reporting as of October 31

The Ontario Securities Commission, AMF and MSC have now released notices reminding derivatives market participants of the imminent requirement to identify counterparties to a transaction by a Legal Entity Identifier (LEI). The OSC further advises that “non-reporting counterparties should provide all relevant information to reporting counterparties under OSC Rule 91-507, including their LEI, to assist reporting counterparties in complying with their obligations”. The obligations in Quebec and Manitoba are similar.

As we've recently discussed, trade reporting rules in Ontario Manitoba and Quebec will require reporting beginning October 31. The requirement to identify counterparties by an LEI will apply to all transactions for which the reporting counterparty is a derivatives dealer or recognized or exempt clearing agency.

The OSC, AMF and MSC also state that reporting counterparties faced with legal barriers to reporting counterparty-identifying information in their jurisdiction should apply for exemptive relief. Meanwhile, while derivatives market participants may face operation challenges not related to legal impediments to obtaining counterparty LEIs by October 31, the notices advise that best efforts should be used to obtain counterparty LEIs as soon as possible.

OSC launches online compliance and regulation guide

On October 27, the Ontario Securities Commission launched a webpage to help registrants find OSC guidance in respect of compliance and regulation matters. Specifically, the webpage, which is organized by topic, provides links to existing OSC notices, reports and guidance. 

Federal Government introduces legislation to mandate disclosure of payments by extractive industry participants

Keith Chatwin and Ivan T. Grbešić  - 

The Government of Canada yesterday introduced legislation to implement the Extractive Sector Transparency Measures Act, following through on the announcement by Prime Minister Stephen Harper in June 2013 that Canada would be establishing new mandatory reporting standards for extractive companies directed at payments made to foreign and domestic governments at all levels, including Aboriginal groups. The Government of Canada has stated that the legislation is intended to be similar to that being implemented in the European Union, and is anticipated to be similar to that expected to be proposed by the United States Securities and Exchange Commission by March 2015.

It is also intended that the Canadian legislation be implemented in a manner that allows for reporting requirements that are uniform across these jurisdictions so as to reduce associated administrative costs for affected companies.

Given that the United States has thus far not introduced comparable legislation, it will be interesting to monitor whether the ultimate orientation and implementation of the Canadian legislation is modified to align with the initiative south of the border. While the SEC introduced a rule under Section 1504 of the Dodd-Frank Act in 2012 to require disclosure of payments by resource extraction issuers, the U.S. District Court for the District of Columbia, in American Petroleum Institute v. SEC, concluded, among other things, that the SEC misinterpreted Dodd-Frank by forcing public disclosure of detailed data on payments, and failed to consider associated competitive effects. Following the ruling the SEC has taken no further regulatory action, although the SEC has indicated that it would issue a new proposal under Section 1504 by March 2015.

Based on earlier indications from the Government of Canada, implementation on or before June 2015 is possible.

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ISS seeks feedback on its Canadian advance notice policy position

Sean Vanderpol and Ramandeep K. Grewal - 

As part of its annual policy consultation process in advance of proxy season, Institutional Shareholder Services (ISS) recently released for comment its draft governance policies for 2015. As per its usually practice, ISS has published proposed amendments to its prior policy provisions, this year seeking feedback on two specific aspects of its policy for TSX-listed Canadian issuers.

First, ISS has proposed to update its current policy on advance notice bylaws and policies in response to what it describes as "unreasonable" policies that could otherwise disqualify experienced shareholder nominees. According to ISS, it has opposed a "substantial majority" of advance notice policies in 2014 due to prohibitions on resetting of the notification period for adjourned or postponed meetings. As we discussed last month, ISS recently recommended a vote against the adoption of advance notice bylaws or policies that do not allow for the commencement of a new time period in the event of an adjournment or postponement.

ISS also specifically cited recent jurisprudence (see our recent post on Orange Capital vs. Partners REIT) as having substantiated its concern in this respect. As we discussed in connection with that case, a restriction on resetting the notice period is not novel and appears to be relatively common in advance notice bylaws and policies adopted by both U.S. and Canadian issuers. Given the purpose of an advance notice provision is to prevent a stealth proxy context, there may be some merit to ensuring that shareholders aren’t faced with having to deal with additional nominations where issuers may be forced to adjourn or postpone a meeting, even for a short time and for reasons unrelated to director nominations.

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Manitoba amends ISDA reporting methodology for derivatives reporting

Margaret Grottenthaler -

The Manitoba Securities Commission yesterday released changes to its derivatives trade reporting rule that will, among other things, address the issue of clearing agency reporting where the clearing agency is not recognized or exempt in Manitoba (by adding a concept similar to Quebec of a “reporting clearing agency”) and which will permit the reporting obligation to be assigned by written agreement (thereby allowing adoption of the ISDA reporting methodology and giving effect to other forms of delegation agreement). Also, similar to the Quebec rule, the Manitoba rule will require Canadian financial institutions (that are not otherwise caught as dealers) to report transactions with non-dealer local counterparties (as opposed to dual reporting in that situation).

Notably, however, the Manitoba amendments diverge from those in Ontario and Quebec insofar as the amended rule requires that, in certain circumstances involving two local non-dealers, each local counterparty submit to the MSC within 5 days of the trade a document identifying both the unique transaction identifier assigned to the transaction by the trade repository to which it reported the transaction, as well as the unique transaction identifier assigned to the transaction by the trade repository to which the other local counterparty reported the transaction. 

The amendments come into force on October 31, 2014. As the amendments are being adopted without a consultation period, the MSC is also accepting comments on whether to make the amendments permanent, until January 5, 2015. For more information, see MSC Rule 2014-19.

Canadian consultation on Capital Markets Acts important to derivatives markets

Margaret Grottenthaler -

As we posted earlier, the Department of Finance has published for consultation legislation to create a cooperative system under which participating provincial and territorial jurisdictions would enact uniform legislation to regulate capital markets within their jurisdictions (the Provincial Capital Markets Act (PCMA)) and the federal government would enact the Capital Markets Stability Act (CMSA) to address systemic risk in national capital markets, criminal matters and data collection across all jurisdictions. A common regulator, the Capital Markets Regulatory Authority (CMRA), would administer the provincial system (in participating jurisdictions) and the federal system.

This post provides further detail on those aspects of the proposed Acts that would regulate derivatives markets. 

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CDS rule amendments would provide clearing agency with emergency authority

The OSC yesterday released proposed amendments to CDS rules that would allow CDS to take immediate action in an "emergency situation" to ensure the safe, fair and efficient operation of its operations.

Authority in such a situation would include, but not be limited to: (i) declining to enter into any transaction; (ii) causing a market participant's suspension; (iii) terminating access to CDXS for all participants; (iv) effecting close-out; and (v) effecting liquidation processes; (vi) taking reasonable action to preserve the integrity of capital markets or the public interest; and/or (vii) taking any other reasonable actions to preserve the integrity and security of CDS.

The proposals are open for a 30-day comment period.

Exemption to transparency requirements extended for trading in government debt securities

The Canadian Securities Administrators today announced that the exemption from transparency requirements for government debt securities will be extended until January 1, 2018. The exemption had been set to expire at the end of this year.

As we discussed earlier this year, the CSA proposed amending NI 21-101 to extend the exemption, along with a number of other proposed changes to marketplace operations and trading rules, in April. The CSA intend to review and proceed with the other proposed amendments on a separate timetable.

Proposal for Canadian cooperative capital markets regulator: the Provincial Capital Markets Act

Ramandeep K. Grewal and Paul Burd

On October 9, 2015, the Canadian federal government’s latest initiative to develop a cooperative capital markets regulatory regime continued to progress with the addition of Prince Edward Island as the fifth province to join in on this proposal.

We have previously discussed the infrastructure and governance proposed for the “Capital Markets Regulatory Authority” (CMRA) that would be created under the proposed cooperative regime. As detailed in that post, the CMRA would administer the federal Capital Markets Stability Act (CMSA) as well as the uniform provincial/territorial Provincial Capital Markets Act (PCMA), which would be adopted by each participating province or territory. In this post we take a closer look at the proposed PCMA.

Under the proposal, the PCMA would be enacted by each participating province and territory and takes a platform approach to capital markets regulation. It sets out the fundamental provisions of capital markets law and leaves detailed requirements to be addressed in regulations.  Where the CMSA, aimed primarily at the regulation of systemic risk, introduces a number of new regulatory concepts, the PCMA in contrast has been drafted to closely follow existing provincial securities legislation. While it most closely resembles the current securities legislation of Ontario and British Columbia, elements from other provinces’ legislation are also incorporated throughout. Similar to current securities laws, the PCMA is comprised of different parts relating to different aspects of securities regulation, such as recognition or designation of self-regulatory organizations, registration, prospectus, take-over bid requirements, etc. 

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CSA members adopt disclosure requirements in respect of women on boards

Amanda Linett and Mike Devereux

Earlier this week, the CSA announced the upcoming implementation in Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Quebec and Saskatchewan of amendments to corporate disclosure obligations to require information in regards to the representation of women on boards of directors.

As we discussed last year, the OSC initiated a consultation process in July 2013 to consider the underrepresentation of women on corporate boards. In January 2014, meanwhile, the OSC published proposed amendments to Form 58-101F1 to require that reporting issuers annually disclose certain information in regards to the representation of women on boards and in respect of the director selection process. Other CSA jurisdictions published proposed amendments in July.

Having considered the responses submitted by stakeholders, the participating CSA jurisdictions have now released harmonized amendments in final form. Ultimately, the amendments published today, which are substantially similar to the earlier proposals, will require non-venture issuers to annually disclose:

  • director term limits and other mechanisms of board renewal;
  • policies regarding the representation of women on the board;
  • the board's or nominating committee's consideration of the representation of women in the director identification and selection process;
  • the issuer's consideration of the representation of women in executive officer positions when making executive officer appointments;
  • targets regarding the representation of women on the board and in executive officer positions; and
  • the number of women on the board and in executive officer positions.

The amendments apply to management information circulars and annual information forms that are filed following an issuer's financial year ending on or after December 31, 2014.

Proposal for Canadian cooperative capital markets regulator: Infrastructure and regulatory authority

Margaret GrottenthalerRamandeep K. Grewal and Alex Colangelo - 

As we recently discussed, the federal government, Ontario, B.C., Saskatchewan and New Brunswick have agreed to implement a cooperative capital markets regulatory system intended to foster more efficient Canadian capital markets, increase investor protection and manage systemic risk.

Under the proposed cooperative system, participating provincial and territorial jurisdictions would enact uniform legislation addressing all matters in respect of the regulation of capital markets within their jurisdictions. Federal legislation, meanwhile, would address criminal matters and systemic risk across the country in respect of national capital markets and data collection.

A common regulator, the Capital Markets Regulatory Authority (CMRA), would administer the provincial and federal legislation and regulations under authority delegated by the participating jurisdictions, while a Council of Ministers (CoM) would oversee the CMRA and be accountable to participating jurisdictions for the exercise of the CMRA’s regulatory powers.

Below, we take a closer look at the cooperative system’s structure and governance framework.

Cooperative Capital Markets Regulator chart

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