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

Raymond McDougall

As we recently discussed, in April 2010, the Canadian Securities Administrators issued for comment proposed amendments to National Instrument 43-101 Standards of Disclosure for Mineral Projects.  Following a comment period, the CSA made few minor changes to its proposals and finalized amendments to NI 43-101, Form 43-101F1 and Companion Policy 43-101CP, which come into force today. Of particular interest, there are a few items to highlight in connection with the coming into force of the new instrument.

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The CSA issued a staff notice earlier this week dealing with the account statement requirements under National Instrument 31-103 Registration Requirements and Exemptions. Specifically, the notice considers the CSA's expectations for exempt market dealers' compliance with account statement requirements in NI 31-103, notes that the CSA will focus attention on EMDs distributing securities of related or connected issuers and draws attention to CSA guidance on the valuation of securities. For more information, see CSA Staff Notice 31-324.

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As part of its Client Relationship Model Project, the CSA has recently published proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions intended to ensure that investors are provided with key information about their account and product-related charges. Under the proposed amendments, registered firms would be required to provide clients with: (i) an annual summary of account-related and product charges; (ii) the original cost of each security added to account statements; and (iii) annual account performance reporting. Annual account performance reporting would include disclosure of net amount invested, change in value, percentage returns and a description of the use and limitations of benchmarks. According to the notice, most of the new requirements would be phased in over two years following their implementation. The CSA is accepting comments on the proposals until September 23, 2011.

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The Ontario Minister of Finance has now approved amendments to National Instrument 43-101 Standards of Disclosure for Mineral Projects. As we discussed in April, the changes are generally intended to increase the effectiveness of mining disclosure rules by eliminating or reducing the scope of various requirements and providing increased flexibility to mining issuers and qualified persons in certain areas. The amendments are scheduled to come into force on June 30.

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The Canadian Securities Administrators today released a consultation paper that proposes a framework of rules for the reporting of OTC derivatives transactions and the operation of trade repositories. The paper builds on the high-level proposals released in CSA Consultation Paper 91-401, published in November 2010, and considers such issues as trade repository governance requirements, transaction reporting obligations and access to confidential trade repository information. The proposals, intended to provide consistency with international principles, are open for public comment until September 12, 2011. For more information, see CSA Consultation Paper 91-402 Derivatives: Trade Repositories.

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Last week, the Canadian Coalition for Good Governance released the results of a study focused on the adoption of corporate governance best practices related to shareholder democracy among Canadian issuers. Namely, the study considered such issues as the appointment of independent chairs and lead directors, annual individual director votes, majority voting policies, director election results disclosure and annual "say on pay" votes. Ultimately, the study found a "significant level of adoption" of such best practices since the CCGG's founding in 2003.

For example, as of 2010 the adoption of individual director elections rather than a slate voting system spread to 83% of S&P/TSX Composite Index issuers representing 95% of the Index by market capitalization. Meanwhile, majority voting policies are now in effect at 57% of Index issuers representing 81% of the Index by market cap. Ultimately, however, the CCGG states that more work is needed and that it intends to continue to its advocacy to ensure that adequate rights are available to investors.

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The Autorité des marchés financiers last week published for comment draft regulations and a policy statement related to the Money-Services Businesses Act. Specifically, the AMF released draft versions of (i) Regulation under the Money-Services Businesses Act, which sets out general obligations and licensing requirements under the Act; (ii) Regulation respecting Fees and Tariffs, which stipulates the fees applicable to money-services businesses; and (iii) Policy Statement to the Money-Services Businesses Act, which sets out how the AMF interprets and intends to apply the provisions of the Act.

The Act, scheduled to come into force in 2012, will require that persons operating a "money-services business" for compensation obtain a license from the AMF and disclose information about their directors, officers, partners, shareholders, branch managers, employees working in Quebec and certain types of lenders with whom they deal. For further background on the definition of "money services business" and scope of application of the Act, see our posts of November 12 and December 17, 2010.

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The CSA today published for comment revised proposals to amend National Instrument 54-101 Communications with Beneficial Owners of Securities of a Reporting Issuer. The proposals, which were originally published in April 2010, are intended to provide reporting issuers with a "notice-and-access" model for sending proxy-related materials, simplify the process of appointing beneficial owners as proxy holders and requiring enhanced disclosure of the beneficial owner voting process. The CSA's revisions reflect changes made in response to public comments received on the original proposals.

For example, the current form of amendments would now permit reporting issuers to use notice-and-access for "special meetings". The revised proposals also include various new obligations, such as requiring reporting issuers to provide advance notice of their first use of notice-and-access and requiring the inclusion of a plain-language explanation of notice-and-access in the notice package sent to shareholders.

The CSA are accepting comments on the proposed amendments until August 16.

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The OSC today published a revised Statement of Priorities for the financial year to end March 31, 2012, thereby updating the version released earlier this year. The revisions to the Statement of Priorities include a number of initiatives to address points raised in public comments received by the OSC. The initiatives include:

1. working with the Ontario Government to explore a mechanism by which the OSC could award compensation to Ontario investors suffering losses due to Securities Act violations;
2. researching the pros and cons of imposing a fiduciary duty on financial advisors;
3. working the with CSA, IIROC and MFDA to harmonize standards for cost disclosure and performance reporting to investors;
4. continuing the implementation of the mutual fund point of sale initiative and expanding it to other types of investment fund products; and
5. demonstrating the importance to the regulatory process of obtaining verifiable data.

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The U.S. SEC announced yesterday that it had concluded that investors with brokerage accounts at the Stanford Group Company who purchased certificates of deposit through the broker-dealer were entitled to protected "customer" status under the Securities Investor Protection Act of 1970. As such, the SEC referred the case to the Securities Investor Protection Corporation and asked the SIPA to initiate a court proceeding to liquidate the SGC. The broker-dealer, owned by Robert Allen Stanford, was charged in 2009 with perpetuating an $8 billion Ponzi scheme. For more information, see SEC release 2011-129 and SIPC's responding release.

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Late last week, the Canadian Securities Administrators, other than the OSC, released for comment a proposed multilateral instrument that would essentially apply continuous disclosure requirements to OTC issuers that have a significant connection to a Canadian jurisdiction (including those that are already reporting issuers at the time the rule comes into force. An OTC issuer would be an issuer who has securities quoted on any U.S. OTC market, unless the issuer is also listed or quoted on another prescribed market. A significant connection would exist where (i) the OTC issuer's business was directed or administered in or from Canada; (ii)  promotional activities were conducted from Canada; or (iii) if the issuer distributed securities in Canada prior to obtaining a ticker symbol for the purpose of having its securities quoted on an OTC market in the U.S. and those securities became the issuer's OTC-quoted securities.

The rule is aimed at curbing the manufacture and sale in Canada of U.S. OTC quoted shell companies that can be used for abusive purposes. The BCSC adopted a similar rule back in 2008 which, according to the CSA notice, led to the migration of some OTC reporting issuers to other Canadian jurisdictions. In this respect, the proposed rule would also impose certain prohibitions and restrictions, including denying the use of certain exemptions, requiring that certain sales be made through registrants and imposing legend requirements.

Issuers subject to the instrument would generally have to comply with the continuous disclosure regime to which venture issuers are subject and, additionally, also file annual information forms (which venture issuers may do voluntarily, but are not required to). Once an issuer triggered the requirements, the OTC Rule would continue to apply for at least one year, continuing to apply after that time only if the issuer was directed or administered or carried out promotional activities in or from a Canadian jurisdiction. The CSA is accepting comments on the proposed instrument until September 9, 2011. For more information, see Proposed Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets.

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As we discussed on April 1, the CSA recently published proposals to establish a new framework for regulating securitized products. Today, the CSA announced that the comment period, originally scheduled to end on July 1, has been extended to August 31.

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The Canadian Securities Transition Office today released an update to its activities since December 2010. According to the release, the CSTO's work includes: preparing regulations for the draft Canadian Securities Act, designing the processes and details related to the Canadian Securities Tribunal and developing an organizational design for the Canadian Securities Regulatory Authority.

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As we discussed in October, the TMX Group announced last year that it intended to begin operating a new alternative trading system (ATS) in 2011. It has now been announced that the new platform, TMX Select, will begin trading on July 11. A phased approach will be taken to the addition of securities to the platform, with eight available at launch and four the following week. According to TMX Select, the marketplace will offer extended trading hours and symmetrical pricing on both sides of a trade.

For more information, see the TMX's release 2011-034, which also includes a fee schedule, as well as IIROC Notice 11-0174. 

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On May 19, the OSC's Corporate Finance Branch issued a notice identifying deficiencies found in issuers' first IFRS interim financial reports for the quarter ending March 31. Specifically, the notice discussed deficiencies related to missing IFRS 1 reconciliations, missing opening IFRS statements of financial position and missing statements of changes in equity. The OSC reminded issuers that internal control over financial reporting (ICFR) and disclosure controls and procedures (DC&P) should be robust enough to address the transition to IFRS and the notice stated that non-compliant issuers would be placed on a list of defaulting reporting issuers until deficiencies were remedied. Issuers with deficient disclosure will be expected to refile interim financial reports, along with revised CEO/CFO certificates.

To help issuers deal with some of these issues upfront, the Corporate Finance Branch issued a checklist earlier this week listing key elements of a first IFRS interim financial report (which is still relevant given the extended deadline for the first IFRS interim filing, which we discussed in our post of April 11). Tip sheets for issuers with year-ends of March 31, June 30 and September 30 are also available.

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The U.S. SEC has now adopted a revised final rule designed to award whistleblowers who voluntarily provide original information to the SEC regarding violations of securities laws where the enforcement action leads to monetary sanctions totalling more than $1 million. The rules also seek to support internal compliance programs by making a whistleblower eligible for an award if the information is reported internally but results in the company informing the SEC about the violations. As we discussed in November 2010, the SEC released a draft proposal last year, and the final rule reflects changes made in response to public comments on the draft.

The provisions may be of particular interest to Canadian companies since, while foreign officials and employees of state-owned enterprises are excluded from the whistle-blower program, employees of foreign companies could be eligible for rewards.

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As we recently discussed, the OSC provided guidance earlier this week for issuers in case of a postal strike, a situation that has now been realized. Other Canadian securities regulators have also provided similar guidance.

For example, the Alberta Securities Commission has advised those required to file material with the ASC to make the filings by delivery or fax unless the filing is required to be made through SEDAR, SEDI or NRD. With respect to the requirement to send financial statements and related disclosure to securityholders, the ASC has issued a Blanket Order providing an exemption under certain circumstances. Among other things, reporting issuers and investment funds are required to issue a news release stating that electronic versions of the financial statements have been filed on SEDAR and that copies of the statements will be sent to those requesting them. The New Brunswick Securities Commission has also issued an order (Blanket Order 51-501) as has the British Columbia Securities Commission (BC Instrument 51-510, applying to reporting issuers other than investment funds), while the Autorité des marchés financiers and Nova Scotia Securities Commission have issued similar guidance.

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As has been reported in the media, a Canadian postal strike could occur as early as tomorrow evening. As an interruption of mail service would impact the ability of issuers and registrants to deliver required documents under securities laws, the Ontario Securities Commission today released guidance for issuers in the event that a postal strike occurs.

Specifically, the OSC stated that, while it will not take action against reporting issuers solely for failing to deliver financial reports to securityholders, issuers must make reasonable efforst to make such reports available to securityholders on request. Further, on the resumption of normal mail service, such reports will have to be mailed. With respect to offering documents, proxy solicitation materials and bid circulars, issuers and affected persons and companies are advised to consult with their service providers as to alternate delivery options, and their legal advisers in order to determine how to best comply with obligations.

Registrants, meanwhile, are advised to make "reasonable efforts" to meet client obligations with respect to trade confirmations and the delivery of other documentation. Applications for registration, financial information and other required information should be delivered or faxed to the OSC.

The OSC guidance also states that applications for exemptive relief from requirements to deliver documents to securityholders and other parties may be necessary and, where relief is urgently needed, the OSC will try to deal with applications as quickly as possible. The OSC also refers market participants to National Policy 11-201 Delivery of Documents by Electronic Means.

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