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

The CSA published a notice today to provide guidance with respect to the disclosure of oil and gas resources other than reserves data. In the notice, the CSA noted that while disclosure of resources not included in reserves data is not required under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, such disclosure "must be consistent with all applicable securities laws." The notice was published in response to "recurring issues" found in the CSA's review of such disclosure.

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The Investment Industry Regulatory Organization of Canada (IIROC) has announced the deferral of the implementation date of certain amendments to the Universal Market Integrity Rules (UMIR) requiring the reporting of trade variations and unresolved failed trades. IIROC published a notice on October 15, 2008 approving the amendments and the implementation date had been set for March 1, 2009.

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Effective for the 2009 proxy season, the Canadian Securities Administrators (CSA) have adopted new requirements for executive compensation disclosure in the form of the revised Form 51-102F6 (the New Disclosure Requirements). The following excerpt from "Executive Compensation After the Boom: A Guide for Canadian Public Companies in 2009" will review the new disclosure requirements as they affect the principle of pay-for-performance.

Pay-for-Performance

The New Disclosure Requirements call for a new narrative form of discussion and analysis of executive compensation (called Compensation Discussion & Analysis, or CD&A). CD&A is required to contain a discussion of, among other things, the objectives of the compensation program, what the compensation is designed to reward, the elements that comprise the compensation package and why the company chooses to pay what it pays, as well as a discussion of how each element of compensation and the company’s decision about such element fits into its overall compensation objectives.¹

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On September 30, 2008, the Investment Industry Regulatory Organization of Canada (IIROC) issued Notice 2008-0113 regarding the adoption of International Financial Reporting Standards (IFRS). Notice 2008-0113 stated that IIROC would require progress reports on the adoption of IFRS from dealer members by April 1, 2009.

On February 23, 2009, however, IIROC released a notice stating that in lieu of a progress report, dealer members will be required to complete a survey, which will be sent to the CFOs of each dealer member. The purpose of the survey will be to "assist dealer members in their self-assessment of the impact to adopt IFRS" and IIROC intends to use the results to "identify implementation issues and next steps".

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Earlier this month, the Manitoba Securities Commission issued a notice repealing the requirements imposed on mutual fund dealers and salespeople set out in MSC Staff Notice 2001-11 with respect to the sale of Labour Sponsored Investment Funds (LSIFs). The MSC indicated that the imposed requirements were no longer applicable.

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Charles R. Kraus

Amid daily news stories and statements from U.S. public officials about bolstering financial system transparency through increased regulation, two U.S. senators have introduced a bill called the Hedge Fund Transparency Act (the Bill). If passed, the Bill would have significant implications not only for hedge funds, but for venture capitalists, private equity funds and other private funds, including potentially Canadian-domiciled and other offshore funds (Private Funds) that rely on commonly-used exemptions from the definition of “investment company” under the Investment Company Act of 1940 (the ICA). A statement issued by one of the Bill’s sponsors makes clear the intention to cast a wide net:

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Simon Romano and Ramandeep Grewal |  PDF Version | Version française

Introduction

As the Canadian implementation date for the changeover from Canadian generally accepted accounting principles (Canadian GAAP) to international financial reporting standards (IFRS) approaches, the broad potential impact is becoming more apparent. The Canadian Accounting Standards Board (CASB) has adopted a transition plan that requires adoption of IFRS by public companies (and certain others, including non-listed financial institutions and securities dealers) for financial years beginning on or after January 1, 2011. While 2011 may still seem a long way off, given the substantial differences between IFRS and Canadian GAAP, it would not be untimely for issuers to now begin thinking about transition issues and developing a transition plan.

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Canadian public companies and their boards have a number of significant issues to consider and address as we enter a new year, including increased investor and regulatory scrutiny.  The market turmoil and economic slowdown that gripped the economy in 2008 also continues to run its course.  In the face of these and other significant challenges, it is time again for public companies to address issues associated with the annual proxy season.  Executive compensation is again in the spotlight, partly on account of the significant disclosure reforms adopted by the Canadian Securities Administrators effective for the 2009 proxy season, and partly on account of increased public awareness of compensation issues such as executive clawbacks, pay-for-performance and golden parachute or change of control payments fuelled in part by the failure of financial firms south of the border.

As such, Stikeman Elliott has prepared this guide to help navigate through these issues.  Part 1 of the guide includes a discussion of the various elements available in designing compensation packages for Canadian executives as well as market developments and other issues relating to these elements. Part 2 highlights current trends in executive compensation and their impact on compensation decisions.

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The U.S. Securities and Exchange Commission (SEC) recently published a final rule requiring companies to incorporate interactive data, using eXtensible Business Reporting Language (XBRL), into financial statements. Issuers will have to "tag" data using a standard taxonomy and provide the interactive data as an exhibit to periodic and current reports and registration statements as well as transition reports for a change in fiscal year. Further, financial statements in interactive data format will have to be posted on a filer's corporate website. The requirements are intended to improve the usefulness of financial information to investors.  "Through interactive data, what is currently static, text-based information can be dynamically searched and analyzed, facilitating the comparison of financial and business performance across companies, reporting periods, and industries."

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The Investment Industry Regulatory Organization of Canada (IIROC) has published proposed amendments to its Dealer Member Rules with respect to the handling of client complaints. The proposed rules seek to establish "an effective framework" for the client complaint process by setting out timelines and standards to which Dealer Members must adhere. The text of the proposed amendments may be found here and comments on the proposals may be submitted to IIROC until March 16, 2009.

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In a bulletin published February 12, the Mutual Fund Dealers Association of Canada (the MFDA) announced that it was establishing a task force to review issues respecting its governance, which emanated from its annual general meeting of members held in December 2008. The issues to be reviewed include the process for nominating board members, the process for making and amending by-laws and rules, the failure to pass a by-law respecting the definition of "Public Director" and the terms of office for directors, and the failure to elect three proposed Public Directors. The MFDA stated that it is determined to fully review the governance issues and conduct a "robust" consultation process.

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David Taniguchi, Charles Kraus and Kristi Kasper |  PDF Version | Version française

As one of its last acts of 2008, the U.S. Securities and Exchange Commission (the SEC) issued its final rule adopting revisions to the oil and gas reporting disclosure requirements applicable to all U.S. domestic and most foreign issuers (the Final Rule)¹. The rule revisions will become effective on January 1, 2010, and issuers will be required to begin complying with them in registration statements filed on or after that date, and in annual reports on Form 10-K and Form 20-F for fiscal years ending on or after December 31, 2009. Citing the potential for incomparable disclosures, the SEC will not permit issuers to follow the new rules prior to their effective date.

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On February 4, the Investment Industry Regulatory Organization of Canada (IIROC) released two studies related to short sales. The first study, "Recent Trends in Trading Activity, Short Sales and Failed Trades", reviewed trading trends during the period of May 1, 2007 to September 30, 2008 with a particular focus on short selling and failed trades. The study found that despite the fact that the average number of daily trades increased "significantly" during the study period, "there was no significant change" with respect to short sales.

The second study released was the "Study on the Impact of the Prohibition on the Short Sale of Inter-Listed Financial Sector Issuers". The purpose of this study was to review the impact of recent restrictions by the OSC in September and October of 2008 (see below) to curb short selling in the face of increased market volatility. Notably, the study found that the OSC Orders "did not appear to have had any appreciable effect on the price of securities"  of either the securities of restricted or non-restricted financial issuers. The Orders, however, had "a significant impact on market quality" for the trading of restricted financial securities, as the Orders reduced the liquidity available in the restricted financials and increased the spread between the ask price and closing bid.

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IIROC recently published a notice providing an update to its Rule Book Project. The objective of the Project is to "produce a clear, streamlined re-statement of the former IDA rules and make substantive reforms to certain important rules." IIROC further states that the Project is a necessary pre-condition to the production of a consolidated IIROC Rule Book that will consist of the Dealer Member Rules and UMIR. IIROC estimates completing the endeavour by February 2010.

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