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

The Canadian Securities Administrators today published for comment proposals intended to "streamline and tailor venture issuer disclosure" to reflect the expectations of investors and to improve the manageability of disclosure requirements for issuers.

The CSA's proposals follow a consultation last year by various provincial regulators on tailoring venture issuer regulation, and would replace the governance, disclosure and certification obligations of venture issuers currently found in NI 51-102 Continuous Disclosure Obligations, NI 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, NI 52-110 Audit Committees and NI 58-101 Disclosure of Corporate Governance Practices with a new National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers.

Among other things, the CSA's proposals would (i) consolidate business, governance and executive compensation disclosure, audited annual financial statements, associated MD&A and CEO/CFO certifications into one document and make modifications to current governance and continuous disclosure requirements; (ii) modify the disclosure obligations of venture issuers in connection with a long form prospectus; and (iii) modify the documents required to be incorporated by reference in the case of a short form prospectus, qualifying issuer OM and the TSX short form offering document.

The CSA also provided a number of questions for commentators to consider in reviewing the proposal and is accepting submissions until October 27.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

On July 4, the Investment Industry Regulatory Organization of Canada published proposed guidance on the guarantee by a Participant (dealer) of a trade price for a client order. The proposed guidance would allow a certain amount of "outperformance" to be guaranteed under certain circumstances if a dealer agreed to take the trade as principal. According to IIROC, expanding the guidance in this way would allow dealers to "offer institutional clients more execution options while ensuring that the Participant does not abuse the ability to provide a guarantee to sidestep the obligations of the Participant to orders displayed in a consolidated market display."

Under the proposal, dealers would only be able to guarantee outperformance up to a maximum of the lesser of 50% of the Participant's historical realized outperformance of the same benchmark over the prior calendar quarter and 30 basis points.

For more information, see IIROC Notice 11-0202.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

OSC Staff published guidance last week on the application of NI 43-101 Standards of Disclosure of Mineral Projects to issuers with mineral brine projects. Among other things, the guidance provides the OSC Corporate Finance Branch Staff's view that mineral brine projects fall under the definition of "mineral project" under NI 43-101. The notice also considers the particular issues to be considered when preparing scientific or technical disclosure in respect of a mineral brine project. For more information, see OSC Staff Notice 43-704.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

As we described last August, the U.S. SEC adopted a new proxy rule last year to, under certain circumstances, require companies to include shareholder nominees for director in the company's proxy materials. In a decision released last week, however, the United States Court of Appeals for the District of Columbia vacated the rule.

Specifically, the petitioners argued that the SEC had enacted the rule

in violation of the Administrative Procedure Act ... because, among other reasons, the Commission failed adequately to consider the rule’s effect upon efficiency, competition, and capital formation, as required by Section 3(f) of the Exchange Act and Section 2(c) of the Investment Company Act of 1940.

Ultimately, the Court of Appeals agreed, finding that the SEC "acted arbitrarily and capriciously" in failing to adequately "assess the economic effects of a new rule."  

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The Canadian Securities Administrators (CSA) announced today that they are adopting amendments to Form 51-102F6 Statement of Executive Compensation effective for financial years ending on or after October 31, 2011. As we discussed in a previous post, proposed amendments were initially published in November and followed a CSA review dating from November 2009 that assessed compliance with executive compensation disclosure requirements.

The CSA revisions to the November proposals, made in response to comments received, are not considered material and, thus, will not be open for further comment.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The Mutual Fund Dealers Association of Canada (MFDA) recently released proposed amendments to the MFDA's "Know-Your-Client" rule (Rule 2.2.1) to clarify that suitability obligations extend to leveraging recommendations and to establish transparent minimum regulatory standards in assessing leverage suitability. The MFDA is accepting comments on its proposals until October 6. For more information, see MFDA Bulletin #0487-P.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

Earlier this month, the TSX released proposed amendments to its Rules that would allow dark orders with a minimum size condition to have trading priority over dark orders without such a condition, as long as the dark orders were at the same price. Dark orders were launched on the TSX and TSX-V in March and the proposed amendments are intended to provide an incentive to encourage dark orders of a larger size. Comments on the proposed amendments are being accepted until August 8.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The Alberta Securities Commission recently released its 2011 Annual Report. The report reviews the ASC's activities over the past year, including with respect to regulatory initiatives and enforcement activity. On the latter point, the report discusses the establishment of ASC's Market Surveillance & Investigation department, which is intended to uncover cases of market abuse.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The CSA released a notice today reminding registrants that outside business interests must not impede or impair their compliance obligations, including with respect to conflicts of interest provisions under NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and, where applicable, MFDA and IIROC requirements. According to the notice, CSA staff will consider a number of issues related to outside business interests when evaluating a registrant's application for registration, change in registration or considering continuing fitness for registration, such as whether the individual would be able to properly service clients and whether the outside business activity presents a conflict of interest that can be appropriately managed. The notice also reminds registered firms of their supervisory responsibilities.

For more information, see CSA Staff Notice 31-326. For an overview of the recent changes to NI 31-103, see our post of July 11.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The Canadian Securities Administrators today published proposed amendments to National Instrument 41-101 General Prospectus Requirements, NI 44-101 Short Form Prospectus Distributions, NI 44-102 Shelf Distributions, NI 81-101 Mutual Fund Prospectus Disclosure and related policies and consequential amendments. The stated purpose of the proposals are to "address user experience and the CSA's experience" with the prospectus rules since the implementation of NI 41-101 in March 2008. The proposed changes include those targeted at all issuers and others targeted only at investment funds.

Accordingly, the proposed amendments to the rules are intended to, among other things, clarify provisions of the prospectus rules, address gaps that have been identified, streamline certain requirements that have proven burdensome for issuers and codify prospectus relief that has been granted. Changes are proposed to, among other things, requirements for filing personal information forms (PIFs), guidance on when contractual rights of rescission may be required in respect of securities underlying convertible, exchangeable or exercisable securities and clarification regarding historical financial statements disclosure for primary businesses or predecessor entities.

Comments on the proposals are being accepted until October 14.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The Canadian Securities Administrators today released a notice summarizing the results of their continuous disclosure review program for fiscal 2011. The CSA ultimately reviewed the disclosure of 1,351 issuers, consisting of 436 full reviews and 915 issue-oriented reviews (which focused on such issues as IFRS transition disclosure, certification and disclosure of material contracts). The reviews resulted in 70% of issuers reviewed being required to take some action to improve disclosure, with 16% being required to amend and refile certain continuous disclosure documents and 40% requiring changes or enhancements in their next filings.

Common deficiencies identified by the CSA's review included boilerplate disclosure in MD&A that lacked analysis, insufficient financial statements disclosure relating to note disclosure and measurement issues, and insufficient disclosure of executive compensation information. Of particular interest, the CSA's notice provides guidance addressing identified deficiencies and provides examples of more robust disclosure.

For fiscal 2012, the CSA stated that their main focus will be on IFRS transtion disclosure.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

On June 30, the Mutual Fund Dealers Association of Canada (MFDA) released a consultation paper that considers the regulatory concerns arising from the use of third party back-office service providers. Back-office services can include such things as software or systems for processing trades, generating client account statements and supervising compliance with regulatory requirements.

The paper identifies a number of regulatory issues emanating from the use of such services and requests feedback from stakeholders regarding potential solutions to address the MFDA's concerns. Issues identified in the paper include the need for MFDA members to ensure compliance with regulatory requirements prior to implementation of a back-office system, the need for such systems to maintain the data necessary to meet record-keeping requirements and the need to ensure that compliance tools incorporated into back-office systems actually result in compliance with MFDA requirements.

The paper goes on to consider a number of options to address the MFDA's concerns including, for example, the development of a non-mandatory list of approved service providers. Ultimately, the paper requests stakeholders to provide their views on the various issues and options and to provide any recommendations or alternatives.

Comments are being accepted by the MFDA until September 30. For more information, see MFDA Bulletin #0484-P.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The U.S. Securities and Exchange Commission adopted rules last month that require advisers to private funds, including hedge funds, to register with the SEC. The initial proposals were first introduced in November 2010 (see our post of December 19) and the final rules incorporate changes in response to public comments. Ultimately, the rules give effect to provisions of the Dodd-Frank Act that increase the statutory threshold for registration by investment advisers with the SEC, require hedge fund and other private fund advisers to register with the SEC and require reporting by certain advisers that are exempt from the registration requirements. Advisers falling under the requirements will have to be registered with the SEC by March 30, 2012.

Meanwhile, the SEC also announced the adoption of rules to implement new registration exemptions for advisers with less than $150 million in private fund assets under management in the U.S. and those that qualify as "foreign private advisers". Under section 202(a)(30) of the Investment Company Act of 1940, foreign private advisers are provided an exemption from registration where the adviser (i) has no place of business in the U.S.; (ii) has fewer than 15 clients and investors in the U.S. in private funds advised by the investment adviser; (iii) has aggregate assets under management attributable to U.S. clients of less than $25 million; and (iv) does not hold itself out to the U.S. public as an investment adviser. The new rules define a number of terms contained in the legislation, such as "investor", "place of business" and "assets under management", in order to clarify the application of the exemption.

As we discussed in October, Canadian securities administrators have meanwhile been working on their own proposals relating to registration of foreign investment fund managers who manage Canadian funds or have fund investors in a Canadian province or territory. The comment period on these proposals closed on January 13, 2011 and pursuant to recent amendments to National Instrument 31-103 that just came into force on July 11, 2011, these fund managers have been given a further deferral from registration until September 2012.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

On April 15, 2011 the Canadian Securities Administrators (CSA) published amendments to National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103), Companion Policy 31-103CP Registration Requirements and Exemptions (31-103CP), National Instrument 33-109 Registration Information, Companion Policy 33-109CP Registration Information and related policies and forms (collectively, the “Amendments”).  Note that the Amendments will change the name of NI 31-103 to “Registration Requirements, Exemptions and Ongoing Registrant Obligations”.  The Amendments range from technical adjustments to more substantive matters and, subject to all necessary approvals being obtained, including ministerial approvals, the Amendments are expected to come into force on July 11, 2011.

Summarized below are some of the key changes under the Amendments.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

Summarized below are some of the key changes under the Amendments that will impact all registrants generally. There are additional amendments that will also affect specific categories of market participants. Learn more by by clicking on any of the following:

> Mutual Fund Dealers
> Investment Dealers (IIROC Members)
> Firms Relying on the International Dealer Exemption
> Firms Relying on the International Adviser Exemption

• Comments
• Trackbacks
• Email This
• Print
• Share Link

In addition to the Amendments affecting registrants, generally, summarized below are some of the key changes under the Amendments that will impact firms relying on the international adviser exemption in section 8.26 of NI 31-103.

Addition of Canadian Residency, Organization or Incorporation Requirement for Permitted Clients

Under the Amendments, the international adviser exemption under section 8.26 of NI 31-103 will be available only if the permitted client is a “Canadian permitted client”. “Canadian permitted client” is defined to mean a permitted client referred to in any of the paragraphs of the definition of “permitted client”, as that term is defined in section 1.1 of NI 31-103, set out in section 8.26(2) if:

• in the case of an individual, the individual is a resident of Canada;
• in the case of a trust, the terms of the trust expressly provide that those terms are governed by the laws of a jurisdiction of Canada;
• in any other case, the permitted client is incorporated, organized or continued under the laws of Canada or a jurisdiction of Canada.

As a result, a non-Canadian firm relying on this exemption is precluded from advising a permitted client unless that permitted client is a "Canadian permitted client". The addition of the "Canadian permitted client" definition to NI 31-103 was not included in the proposal of the Amendments published for comment on June 25, 2010. Members of Stikeman Elliott’s securities practice group have written to the CSA to suggest that they defer implementation of this change pending a full notice and comment process. Based on recent discussions, we understand that a deferral is not feasible however, we also understand transitional relief is being contemplated and we anticipate a resolution in the short term. A copy of our letter to the CSA is available upon request.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

In addition to the Amendments affecting registrants, generally, summarized below are some of the key changes under the Amendments that will impact firms relying on the international dealer exemption in section 8.18 of NI 31-103.

Addition of Canadian Residency, Organization or Incorporation Requirement for Permitted Clients

Under the Amendments, the international dealer exemption under section 8.18 of NI 31-103 will be available only if the permitted client is a “Canadian permitted client”. “Canadian permitted client” is defined to mean a permitted client referred to in any of the paragraphs of the definition of “permitted client”, as that term is defined in section 1.1 of NI 31-103, set out in section 8.18(1) if:

• in the case of an individual, the individual is a resident of Canada;
• in the case of a trust, the terms of the trust expressly provide that those terms are governed by the laws of a jurisdiction of Canada;
• in any other case, the permitted client is incorporated, organized or continued under the laws of Canada or a jurisdiction of Canada.

As a result, a non-Canadian firm relying on this exemption is precluded from engaging in a trade with a permitted client unless that permitted client is a "Canadian permitted client". The addition of the "Canadian permitted client" definition to NI 31-103 was not included in the proposal of the Amendments published for comment on June 25, 2010. Members of Stikeman Elliott’s securities practice group have written to the CSA to suggest that they defer implementation of this change pending a full notice and comment process. Based on recent discussions, we understand that a deferral is not feasible however, we also understand transitional relief is being contemplated and we anticipate a resolution in the short term. A copy of our letter to the CSA is available upon request.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

In addition to the Amendments affecting registrants, generally, summarized below are some of the key changes under the Amendments that will impact IIROC members.

Avoidance of Conflicts (Managed Accounts)

Where a registered investment dealer is also an adviser to a managed account, the Companion Policy emphasizes that proper policies and procedures should be in place to sufficiently mitigate the conflicts of interest inherent in trades between inventory accounts and managed accounts. The policies and procedures should consider best execution requirements, fair pricing and appropriate oversight.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

In addition to the Amendments affecting registrants, generally, summarized below are some of the key changes under the Amendments that will impact mutual fund dealers.

Permitted Activities

Registered mutual fund dealers are no longer restricted in Quebec from acting as dealers of labour sponsored investment funds or labour sponsored venture capital corporations.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

Earlier this week, the Ontario Securities Commission announced that it is undertaking a targeted review of Ontario reporting issuers listed on Canadian exchanges that have "significant business operations" in emerging markets. According to the OSC, the review is intended to examine the disclosure of certain issuers, as well as the role of auditors and underwriters in assisting such issuers access to the Ontario market. The OSC's announcement follows the recent disclosure-related allegations made against Sino-Forest, which acquired a Canadian listing through a reverse takeover in the 1990s.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

As we've discussed in the past, the UK financial regulatory universe is undergoing, in the words of Financial Services Authority Chairman Adair Turner, a "major shift in philosophy". Under the new system of regulation, the Financial Policy Committee of the Bank of England will be responsible for macro-prudential regulation, a new Prudential Regulation Authority is being created as a subsidiary of the Bank of England to supervise deposit takers, insurers and significant investment firms and a new Financial Conduct Authority will be responsible for regulating conduct in retail and wholesale markets.

In preparation for the upcoming changes, the FSA recently published a document outlining how the FCA is expected to approach the delivery of its objectives. Specifically, the document sets out the objectives and powers of the FCA and the regulatory approach expected to be taken. The document also provides a summary of the FCA's plans to coordinate with regulatory authorities in the UK and internationally.

The FSA's paper follows publication of a consultation document by HM Treasury in February that provided further details on the UK Government's proposals for regulatory reform and the more recent White Paper, which takes into account public response to the consultation document.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The Canadian Securities Administrators released a staff notice yesterday summarizing findings from a focused compliance review of the marketing practices of firms registered as portfolio managers. The review, which looked at a representative sample of 56 portfolio managers, identified a number of deficiencies in the preparation, review and use of marketing materials, including with respect to the use of hypothetical performance data, exaggerated claims and the use of benchmarks. The notice also provides guidance with respect to suggested practices to address specific concerns.

Interestingly, the notice also includes a discussion of the use of social media for marketing purposes. While the CSA found that portfolio managers do not generally employ social media to currently market services, firms may be considering doing so. To that end, the CSA state that they expect firms and registered individuals to comply with regulatory requirements and legislation in using such websites. Thus, according to the notice, firms contemplating the use of social media should consider: (i) establishing policies and procedures for the review, supervision, retention and retrieval of materials on social media websites; (ii) designating an appropriate individual to be responsible for the supervision or approval of communications; and (iii) reviewing the adequacy of systems and programs to ensure compliant record retention and retrieval capability. 

For more information, see CSA Staff Notice 31-325.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

Earlier this week, the Investment Industry Regulatory Organization of Canada (IIROC) published Notice 11-0203 relating to securities trading halts in coordination with the application of "circuit breakers" on U.S. markets.  In the U.S., trading halts occur based on trigger levels of 10%, 20% and 30% drops of the Dow Jones Industrial Average, calculated at the beginning of each quarter using the previous month's average closing value. The NYSE thresholds for the third quarter of 2011 are 1,200 points, 2,400 points and 3,650 points respectively.

It is IIROC's policy that it will coordinate trading halts with U.S. markets, but for days when Canadian markets are open and American markets are closed, IIROC has published related triggers based on drops in the S&P/TSX Composite Index. The TSX trigger levels are: Level 1 (10%) - 1,300 points; Level 2 (20%) - 2,650 points and Level 3 (30%) - 3,950 points, and result in trading halts ranging from 30 minutes to the balance of the trading session, depending on the time of day and magnitude of the market decline. Triggering the Level 1 threshold between 2:00 and 2:30 p.m., for example, would result in a 30 minute halt in trading, while trading would be shut down for the rest of the day should a Level 3 halt occur. The threshold levels for the third quarter are slightly lower than those for the second quarter of 2011.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The Alberta Securities Commission recently released its 2010 Oil and Gas Review, a report that contains the ASC's observations on the oil and gas disclosures of Alberta reporting issuers. While the report identifies a number of deficiencies (such as with respect to the disclosure of resources other than reserves data, the disclosure of costs incurred regarding acquisitions, exploration and development, and improper use of cautionary statements), the ASC ultimately found itself "generally satisfied" with the state of disclosure by issuers. The report also provides guidance on a number of disclosure issues, considers recent amendments to NI 51-101 Standards of Disclosure for Oil and Gas Activities and reviews international policy developments respecting oil and gas disclosure rules.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

William J. Braithwaite

Fairness opinions are largely accepted as forming an essential component of the board’s review of a major business transaction. They are typically obtained from a financial adviser for the purpose of analysing the consideration that is being received or paid, in order to determine whether the transaction meets the requisite standards of fairness. In this respect, the fairness opinion can assist in demonstrating that the board has fulfilled its duties in considering a transaction, and provide objective evidence of its fairness. A fairness opinion often supports a board’s recommendation to the shareholders when a transaction requires the affirmative vote of the shareholders in order to proceed. Issues relating to fairness opinions and the proper board process surrounding such opinions have surfaced recently on a few occasions in Canada, the most recent being the high-profile dual class share declassification of Magna International Inc, a transaction where, ironically, no fairness opinion was given. What follows from the Magna transaction is a clear affirmation that the facts will be paramount in determining whether a fairness opinion fulfils its objectives. These facts include not only the nature of the transaction and consideration involved, but also the process followed by the board in retaining and working with its financial advisers.

• Comments
• Trackbacks
• Email This
• Print
• Share Link

The Alberta and British Columbia Securities Commissions recently released a joint notice requesting comments on proposed amendments to the TSX Venture Exchange Rule Book that would allow the TSX-V to provide an automated market-on-close facility and a special trading session at the end of the day to enable traded and the submission of crosses at the last sale price.

The TSX-V's market on close facility would operate in materially the same way as the TSX facility, which is described as providing an efficient mechanism to establish the closing price, mitigating volatility around the close and encouraging increased liquidity for index related securities. The TSX-V's MOC facility would initially include all securities in the S&P/TSX Venture 30 Index and additional stocks could be added when new indexes are created or through customer requests.

Comments on the proposed amendments will be accepted until July 11.

• Comments
• Trackbacks
• Email This
• Print
• Share Link