On July 30, 2008, the U.S. Securities and Exchange Commission (SEC) announced new guidance for public companies with respect to investor disclosure on corporate websites. Citing the development of the internet and the emergence of social networking since the last time it issued such direction, the SEC guidance clarifies how companies can develop their websites while complying with securities regulations.
OSC Staff Notice 11-763 - A Focused Review of the Securities Valuation and Expense Allocation Practices of Fund Managers
In reviewing the methodologies used to value portfolio securities and practices related to charging of expenses, the Staff Notices states that overall the fund managers reviewed had adequate policies and procedures, used appropriate valuation techniques, followed practices consistent with their disclosure and were adequately overseeing service providers.
The OSC consented to the MFDA’s continued participation in the Co-operative Agreement with the AMF, pursuant to which the AMF, the Chambre de la sécurité financière and the MFDA co-ordinate their various regulatory functions with respect to MFDA Members and their Approved Persons operating in Québec.
All members of the CSA, other than the OSC, have published their proposed rule and policy for extending the Passport system to registrations. The proposals also include a new proposed national policy for all jurisdictions setting out how the process for registration in all jurisdictions will work.
Along with the proposed passport system for registrations, this notice also includes proposed rule and policy amendments to the existing Passport rules and policies to deal with issues that have arisen since Phase II of Passport was implemented.
These proposals are open for comments until October 17, 2008.
Important developments for Canadian and cross-border derivatives activities in the Québec market
Québec's new Derivatives Act (the Act) received royal assent on June 20, 2008 and will come into force on dates to be set by the Government. The Act will regulate both over-the-counter (OTC) and exchange-traded derivatives in standalone legislation, subject to certain carve outs for OTC derivatives activities involving "accredited counterparties" and in other cases to be specified by regulation.
Some of the highlights of the new legislation are noted below. Since the key provisions of the Act cross-reference regulations that have yet to be published, it is still too early to determine the exact scope and application of the Act and its potential impact on the various segments of the Canadian and cross-border derivatives market. It is expected that the Act and companion regulations (once published) will enter into force at the same time over the course of the next few months.
On July 14, 2008 the Minister of Finance released draft legislative proposals that implement certain measures from the 2008 federal Budget together with certain previously announced tax changes, including certain proposals to amend the rules relating to specified investment flow-through (SIFT) trusts and partnerships that were announced in December 2007.
In addition, the proposals contain the rules for allowing a SIFT trust to convert into a publicly traded corporation without adverse consequences for the trust or its unitholders. The SIFT conversion rules generally allow the unitholders of a SIFT trust to transfer their units of the trust to a corporation in exchange for shares of the corporation on a tax deferred basis. While such a transfer is possible under the current rules in the Income Tax Act, the new rules allow this tax deferred transfer to be effected without the need for a joint election to be filed by the unitholder and the corporation. In addition, the new rules will allow the trust and its subsidiary trusts to be subsequently wound up into the corporation without adverse tax consequences and will permit the flow-through of certain tax attributes of the trust and its subsidiary trusts to the corporation. Alternatively, a SIFT trust (or a subsidiary trust of a SIFT trust) whose only asset is shares of a taxable Canadian corporation may wind-up and distribute the shares of the corporation to its beneficiaries on a tax deferred basis.
The SIFT conversion rules will apply to conversions that are effected after July 14, 2008 and before 2013 and, on election, may also apply to conversions occurring after December 20, 2007 and prior to July 14, 2008.
Update: See our recent post regarding our Income Trust Conversion Guide.
CSA Staff Notice 52-322 - Status of Proposed Repeal and Replacement of Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings
The purpose of this staff notice is to provide the following update on the status of the proposed repeal and replacement of Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (the “Certification Rule”):
- based on comments received in response to the proposed repeal and replacement the CSA do not anticipate making any material amendments to the materials as proposed; and
- the restated Certification Rule is expected to come into force, as earlier indicated, on December 15, 2008.
The CSA have only issued this status notice at this time, indicating that the final restatement of the proposed Certification Rule is to follow. If the Certification Rule is revised as was proposed in April 2008, issuers will be required to add, among other things, certifications regarding the following matters to their existing certificates: (i) the design of internal control over financial reporting (ICFR) to a reasonable assurance standard, (ii) the control framework used to design the ICFR and (iii) any material weaknesses relating to design.
CSA Staff Notice 52-321 is an update to CSA Concept Paper 52-402 published in February 2008 and sets out conclusions that the CSA staff have reached on the following issues (which represent some but not all issues raised in the concept paper):
- Early adoption of IFRS: Staff are prepared to recommend exemptive relief for issuers wanting to transition to IFRS before January 1, 2011. However, if a domestic issuer has previously filed financial statements prepared in accordance with Canadian GAAP or US GAAP for interim periods in the first year that the issuer proposes to adopt IFRS the staff will recommend that the issuer file revised interim financial statements prepared in accordance with IFRS-IASB, revised interim management discussion and analysis, and new interim certificates.
- Staff are proposing to retain the exemption in NI 52-107 for a domestic issuer that is also an SEC issuer to continue to use US GAAP.
- Staff are proposing to retain references to IFRS-IASB (instead of referring to post 2011 principles as Canadian GAAP), however, issues relating to the availability of an appropriate French translation of IFRS and reference to both IFRS-IASB and Canadian GAAP are continuing to be considered.
The CSA have approved amendments to NI 51-102, 51-102F3 Material Change Report, NI 52-108 Auditor Oversight and NI 81-106 Investment Fund Continuous Disclosure. The changes are primarily of a technical nature required in order to conform these rules to the recent harmonization of securities laws among passport jurisdictions, and are effective July 4, 2008.
Additional amendments have also been made to section 9 of NI 51-102 with respect to proxy solicitation in order to exempt certain types of public solicitations from the requirement to send a proxy circular (to conform with what is currently required under the CBCA).