The Ontario Securities Commission announced today that Ontario's Minister of Finance has approved its Memorandum of Understanding with the U.S. Financial Industry Regulatory Authority. The MOU, which we discussed in our post of November 18 and became effective as of December 13, is intended to facilitate the exchange of information between the two regulators.
On December 22, the Supreme Court of Canada released its much-anticipated opinion, rejecting the federal government’s proposal to implement a national securities regulatory scheme under the oversight of a national securities regulator. The express question posed to the Court was whether the proposed Securities Act (the “proposed Act”) fell within Parliament’s general authority to regulate trade and commerce under section 91(2) of the Constitution Act, 1867. The Supreme Court answered in the negative, concluding that taken as a whole, the proposed Act was chiefly directed at regulating matters falling within provincial authority over property and civil rights.
In considering the division of powers between Parliament and the provinces, the Supreme Court noted the emergence of a flexible view of federalism "that accommodates overlapping jurisdiction and encourages intergovernmental cooperation," highlighting that while important, cooperation and flexibility cannot override or modify the separation of powers. The Supreme Court then applied a “pith and substance” analysis against this backdrop of “cooperative federalism,” looking at the purpose and effects of the proposed law to determine whether its “main thrust” was within Parliament’s jurisdiction over trade and commerce.
Continue Reading...The Toronto Stock Exchange proposed amendments to its Company Manual today to implement a Due Bill tracking system for listed issuers. A Due Bill is defined by the proposal to mean "an instrument used to evidence the transfer of title to any dividend, distribution, interest, security or right to a listed security contracted for, or evidencing, the obligation of a seller to deliver such dividend, distribution, interest, security or right to a subsequent purchaser." Comments on the amendments, which must still be approved by the OSC, are being accepted until January 23, 2012.
In a news release published last week, the Autorité des marchés financiers (the AMF) stated that it anticipates that the Money-Services Businesses Act (the Act) will come into force on April 1, 2012, as will the Policy Statement to the Money-Services Businesses Act, the Regulation under the Money-Services Businesses Act and the related Regulation respecting Fees and Tariffs. The AMF also anticipates that all statutory and regulatory provisions dealing with the operation of automated teller machines will come into force on January 1, 2013.
The Act and regulations will require any person or entity who operates a money-services business for remuneration to hold a licence issued by the AMF and to disclose information about its directors, officers, partners, shareholders, branch managers, employees working in Quebec and certain types of lenders. The Act and regulations also set out the nature, form and content of the books, registers and records that a money-services business must maintain and preserve, as well as the requirements governing the identification of customers and co-contracting parties.
Continue Reading...The Supreme Court of Canada ruled today that the proposed Canadian Securities Act is outside the jurisdiction of the federal Parliament.
Siding in certain respects with the lower court decisions from Alberta and Quebec, the Court held that the Act viewed in its entirety cannot be classified as falling with the general trade and commerce power of the national government.
Check back here for more details on the decision.
On December 20, Institutional Shareholder Services released a paper outlining its new methodology for evaluating U.S. pay-for-performance in 2012. As we discussed in a November post, the new approach, which will consist of an initial quantitative assessment and, where appropriate, an in-depth qualitative assessment, was first introduced in ISS' updated proxy voting guidelines for the upcoming year.
The quantitative review will include a relative evaluation, which compares CEO pay and performance to peers and is designed to identify outlier companies that have demonstrated a significant misalignment between CEO pay and company performance, and an absolute evaluation that looks at CEO pay trends relative to shareholder return. Where a pay-performance disconnect is identified, a qualitative assessment will follow to determine either the likely cause or mitigating factors in the misalignment.
As we discussed in our blog post October 28, ISS has stated that the new methodology is being considered for Canada.
The Ontario Securities Commission announced yesterday that it is extending the public consultation period in respect of its proposed new enforcement initiatives. As we discussed in an October post, the OSC is currently considering, among other things, allowing cooperative respondents to resolve enforcement matters without admitting facts or to non-compliance with securities law (commonly known as a "no-contest" settlement).
Citing high levels of public interest in the proposals, the OSC has now extended the deadline for comments until January 16, 2012. Further, a policy hearing will be held to seek additional input. For more information, see OSC Staff Notice 15-705.
The Investment Industry Regulatory Organization of Canada yesterday released the filing deadlines for monthly financial reports to be filed by its members in 2012. For those dealers that have had their changeover to IFRS deferred to 2012, additional days for the first two monthly financial reports will be provided. For more information, see IIROC Notice 11-0363.
On December 16, the Autorité des marchés financiers announced adjustments to certain costs and fees for the upcoming year. Specifically, fees payable under laws administered by the AMF, including the Securities Act and Derivatives Act, will increase by 2.66% as of January 1, 2012. For the AMF's complete list of adjusted fees, see section 1.1 of AMF Bulletin vol. 8, no. 50.
Canadian financial regulators are hampered by the gridlock that comes with fragmentation. Independent oversight could promote new ways of thinking
Ian Russell and Edward Waitzer -
As Canadian securities regulators become more fragmented, the tendency to "lock-in" to policy choices based on previous decisions has increased.
This tendency is natural where individuals working in teams are often less equipped to act on key information than when there is more accountability. The gridlock is exacerbated by a complex and rapidly evolving market environment, contributing to oversimplification and "tunnel vision." Many of us tend to see the world in a particular way when it serves our self-interest to do so. It's easy to ignore "inconvenient" facts or analysis to promote a desired outcome. And yet in today's world, "normal" paradigms rarely hold up.
Likewise, there is a proclivity for "conservatism bias," where information is interpreted to confirm prior expectations. There is also perceived safety in the status quo, even when available evidence suggests a different course of action. This is particularly so when consensus is difficult to achieve or there is much uncertainty over the consequences of a particular action.
Each of these biases are a disincentive to engage in independent, analytical thought. Efforts are made to avoid such conduct through accountability mechanisms (e.g., review by third parties, independent auditing). But these mechanisms no longer work as effectively as they should with Canadian securities regulators.
The challenge is particularly acute with respect to the reform of existing rules, where inertia becomes an obstacle to the adjustments required to ensure competitive and well-functioning markets and to address the inevitable, unintended consequences of regulation.
Continue Reading...The Supreme Court of Canada announced today that its judgment in the reference case regarding the proposed Canadian Securities Act and whether Parliament has the Constitutional authority to create a national regulator will be released on Thursday morning at 9:45 a.m. Check back here on Thursday for coverage of the decision. The Supreme Court heard arguments in the case in April of this year.
For more information, see our earlier posts on the subject:
SCC hearing on national securities regulator: Day 2 (April 14, 2011)
SCC hearing on national securities regulator: Day 1 (April 13, 2011)
Quebec Court of Appeal rules against federal securities regulator (April 1, 2011)
Alberta Court of Appeal finds proposed federal Securities Act unconstitutional (March 8, 2011)
CSTO provides update on federal securities regulation (January 12, 2011)
Proposed federal securities legislation moves Canada a step closer to capital market regulation at a national level (June 8, 2010)
Proposed federal Securities Act outlines framework for regulation of derivatives (May 27, 2010)
Eliot N. Kolers and Andrew S. Cunningham -
Earlier this year, the Ontario Superior Court heard a motion that considered whether solicitor/client privilege extends to documents shared with non-lawyers who participated in structuring a complex commercial transaction. The ruling in Barrick Gold Corp. v. Goldcorp Inc. is brief but expands on a point made in Camp Development Corp v. South Coast Greater Vancouver Transportation Authority.
In Camp Development, the B.C. Supreme Court held inter alia that solicitor-client privilege extends to communications between the defendant’s solicitor and another member of the client’s transaction team who was not a lawyer (a project manager). In that case, it was not that the project manager served merely as a conduit or “channel of communication” between solicitor and client (that being one way in which a third party could traditionally fall under the umbrella of solicitor-client privilege) but rather that his function was “essential to the existence and operation of the solicitor-client relationship”, a slightly different criterion arising from the leading case of General Accident Assurance Co. v. Chrusz. As implied in Camp Development, this is essentially a “deal team” exception, recognizing the “practical reality in major commercial projects where teams of individuals with focused expertise are assembled.”
In Barrick, meanwhile, the plaintiff contested a claim of privilege over documents containing the advice of various advisors from (for example) BMO and GMP Capital. Ultimately, the Court found that the non-lawyer advisers were
appropriately regarded as part of the "team" for the purposes of requesting, obtaining and/or receiving legal advice.
The documents make clear the particular input of a relatively small number of non-lawyer individuals outside the companies, whose input was necessary and appropriate to the consideration, structuring, planning and implementation of very complex transactions in a very short timeframe.
While accepting the general principle of Chrusz, Justice Campbell added:
I do not accept that there is to be expected a “deal team” extension of solicitor/client privilege in every complex commercial transaction where there is not a specific protocol that has been executed. In each instance the context, the parties and that framework for the establishment and maintenance of privilege must be established to the satisfaction of the Court.
To be privileged, then, the solicitor's advice should be targeted to those members of the team whose input is essential to the proper performance of the solicitor's role. An example given in the ruling is that of a former senior employee of one of the defendant companies, whose “institutional knowledge and wisdom” was required in order to develop the legal strategy for the transaction, in the view of Justice Campbell.
The Ontario Securities Commission has extended the existing exemption from the transparency requirements for government debt securities, found in section 8.6 of NI 21-101 Marketplace Operation, until December 31, 2014. The exemption, whose extension was first proposed in October, was set to expire at the end of this year. For more information, see OSC Rule 21-501.
The British Columbia Securities Commission has now replaced BC Instrument 45-533, which granted limited relief from its new private placement disclosure form (Form 45-106F6 or the "BC Form") with a new version of the Instrument. As we've discussed in earlier posts, private placements in British Columbia have been subject to expanded post-trade disclosure requirements since October 3rd. The new version of the Instrument expands on the range of circumstances under which an issuer or underwriter can avoid having to file Form 45-106F6. Exemptions from certain parts of the BC Form are also provided.
Specifically, all investment funds (not just those managed by a Canadian registered manager) are now exempt from filing the BC Form (and can instead file a Form 45-106F1 or the "National Form"). Issuers or underwriters distributing securities of a non-reporting issuer only to permitted clients (as defined in NI 31-103) are also exempt from filing the BC Form provided they file the National Form and provide notice of their reliance on the filing exemption. Meanwhile, foreign public issuers and their subsidiaries, as well as subsidiaries of reporting issuers, are now exempt from having to provide information in item 4 of the BC Form (which is the item that requires detailed information about insiders and their holdings). Further, "insider information" under item 4 will now only be required for directors, executive officers, promoters and control persons.
The new Instrument came into force on December 9, 2011.
The Ontario Securities Commission recently approved amendments to the TSX's rules to prioritize dark orders of a certain minimum quantity over other dark orders, as long as the dark orders are at the same price. The amendments were first proposed in July, and no comments were received in response to the original proposals. Dark orders were launched on the TSX and TSX-V in March and the amendments are intended to provide an incentive to encourage dark orders of a larger size.
The amendments are part of an ongoing effort to address issues surrounding dark pools and dark orders in Canada. Proposed amendments to the Universal Market Integrity Rules were proposed by IIROC in July to address dark liquidity. Among other things, IIROC's proposals would introduce or amend definitions related to dark liquidity, allow IIROC to designate a minimum size for orders that would not be displayed in a consolidated market display and permit IIROC to designate a minimum size of an "iceberg" order that must be displayed in a consolidated market display. Comments on IIROC's proposed amendments were due by October 27, 2011.
The CSA, meanwhile, has also been studying issues surrounding dark liquidity, as we discussed in our post of August 2.
The Investment Industry Regulatory Organization of Canada (IIROC) published a notice this week requesting comments on whether Canadian market-wide circuit breakers should be reconsidered in light of potential changes to circuit breakers in the United States.
Currently, market-wide circuit breaker policy in Canada is coordinated with circuit breakers in the U.S., where trading halts occur based on trigger levels of 10%, 20% and 30% drops of the Dow Jones Industrial Average. 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 related triggers based on drops in the S&P/TSX Composite Index.
With the U.S. Financial Industry Regulatory Authority (FINRA) proposing to amend its circuit breaker structure and thresholds, IIROC is now considering whether to continue its coordination with U.S. circuit breakers, adopt Canada-specific parameters for the triggering of circuit breakers, or adopt a hybrid approach. IIROC is thus requesting comments on the potential options and has set out a number of specific questions for respondents to consider.
Comments on IIROC's proposals are being accepted until February 13, 2012. For more information, see IIROC Notice 11-0359.
Earlier today, the Ontario Securities Commission released the December 2011 issue of its Investment Funds Practitioner. The publication provides an overview of issues arising from exemptive relief applications, prospectus filings and continuous disclosure documents filed by investment funds with the OSC.
Issues considered with respect to applications for exemptive relief include applications from portfolio managers to permit the distribution of pooled fund securities to fully managed accounts held by clients who do not qualify as accredited investors, requests for confidentiality without substantive reasons provided, and subadviser conflicts of interest. With respect to prospectus filings, the publication provides the Investment Funds Branch's views on the use of prepaid forwards by mutual funds and non-redeemable investment funds and the disclosure of management fees and trailing commission payments.
The publication also provides an overview of issues arising in connection with Fund Facts, specifically with respect to relief to permit early delivery of Fund Facts, disclosure of expected mergers, risk methodology and the disclosure of separately negotiated fees.
The Alberta Securities Commission recently released its annual Corporate Finance Disclosure Report for 2011, which sets out the results of its continuous disclosure reviews for the past fiscal year. In addition to performing full continuous disclosure reviews, the ASC also conducted issue-oriented reviews focused on the first quarter interim filings of reporting issuers that transitioned to IFRS.
Ultimately, the report highlights recurring issues found in reporting issuers' disclosure, including such things as gaps in financial statements relating to reverse takeover transactions, deficiencies in the disclosure of risk factors and assumptions used to develop forward looking information, and insufficient environmental disclosure.
While the ASC stated that it was generally satisfied with the results of its IFRS-focused reviews, the report cited a slight increase in the amount of refilings requested (from 14% to 16% of issuers reviewed). Notably, the proportion of financial statement refilings increased significantly, from 17% of refilings to 43%. Issues that the ASC observed included missing financial statements, unclear transition impact, boilerplate accounting policy disclosure and lack of identification of IFRS 1 exemptions taken. The report also provides practice tips and examples of disclosure for the benefit of reporting issuers preparing to file their first annual IFRS financial statements.
Finally, the report also reviews disclosure made in offering documents filed by reporting issuers where Alberta is the principal regulator. Deficiencies found in such documents included insufficient disclosure regarding use of proceeds and oil and gas activities.
Quebec's Autorité des marchés financiers today launched a public consultation to consider a potential compensation system for consumers of financial products and services that have been victims of fraud. Specifically, the AMF is seeking submissions on issues such as:
The AMF is accepting submissions from interested parties until February 7, 2012.
The Ontario Securities Commission today issued a notice approving Alpha Group's application to become a recognized exchange. The recognition will be effective on February 1, 2012 or on the date that the operations of Alpha ATS are legally transferred to Alpha Exchange, whichever is later.
The new Alpha Exchange intends to operate two distinct listing markets referred to as Alpha Main and Alpha Venture Plus. According to Alpha, issuers on the latter market are intended to be similar to issuers within Tier 1 of the TSX-V. The notice of approval also includes copies of the listing handbooks for each market.
IIROC released guidance yesterday regarding the communication, supervision and retention of advertisements, sales literature and correspondence by dealers. The notice, which replaces previous guidelines issued in 2004, is intended to reflect the emergence of social media as a form of communication (see our February post discussing the draft version of the guidance).
The notice thus provides guidelines with respect to: (i) whether certain online practices constitute advertising or sales literature; (ii) the application of recordkeeping requirements to social media websites; (iii) suitability and recommendations; (iv) supervisory responsibilities; (v) electronic and voicemail orders; (vi) third-party communications and research; and (vii) other various regulatory requirements.
The guidelines are effective immediately.
The Toronto Stock Exchange released guidance this week, in the latest issue of its Issuer Update publication, intended to clarify the process for disseminating information through news releases. Different procedures exist depending on the time of day the news release is disseminated and whether the release contains material information. For the sake of clarity, we've reproduced the TSX's chart, below:
|
Disseminating Information Before 8 a.m. or after 5 p.m. (ET) |
Disseminating Information Between 8 a.m. and 5 p.m. (ET) |
|
|
Material information |
Distribute the news release through approved news wire service and copy IIROC at the time the release is sent to the wire. As a courtesy, call IIROC to advise that a material release has been disseminated. |
Pre-file the news release with IIROC and obtain IIROC’s sign off before distributing the news release through an approved news wire service. |
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No material information |
Distribute the news release (approved news wire service not required) and copy IIROC at the time the release is sent to the wire. |
Distribute the news release (approved news wire service not required) and copy IIROC at the time the release is sent to the wire. |
According to the TSX, requirements for TSX Venture Exchange issuers will be addressed in the next issue of Issuer Update.
The Investment Industry Regulatory Organization of Canada published proposals last week that would require its dealers to disclose their membership in IIROC. Among other things, dealers would have to display the IIROC decal at business locations to which clients have access and display the IIROC logo on client trade confirmations, account statements and on the dealer's website. According to the notice, the proposals are intended to raise public awareness of the advantages of working with IIROC-regulated firms and advisors, and help investors determine the regulatory status of firms and individuals. IIROC is accepting comments on the proposals for 60 days.
On November 1, I had the opportunity to participate in a panel discussion on M&A Trends and Outlooks during OSC Dialogue 2011 (which we've discussed previously on this blog). The panel also included James Turner (Vice-Chair of the OSC) and Naizam Kanji (Deputy Director of Corporate Finance at the OSC). Of particular interest was the discussion of poison pills.
Mr. Kanji reported that the OSC is currently considering adopting a standalone rule on shareholder rights plans that would allow poison pills to remain unchallenged if approved by shareholders. While the content of pills would be minimally regulated, shareholders would have to be able to remove the pill on a “majority of the minority” vote (requiring a bidder to launch a proxy battle or proceed with a permitted bid).
The purpose of the rule would be to provide more consistency and certainty in the context of defensive tactics and decrease the need for regulatory intervention. In this respect, both Mr. Kanji and Mr. Turner expressed that, in their view, securities regulators are better situated to consider shareholder rights plan challenges than the courts. Courts, Mr. Kanji stated, are restricted by the way an application is presented and then must undertake a process oriented analysis applying the business judgment rule. A substantive analysis, which can be undertaken by securities regulators, would be more appropriate. Mr. Turner added his view that Ontario courts are not the right venue for defensive tactics. They are not Delaware courts, he noted, and the Commission is more apt at dealing with the policy issues involved.
Continue Reading...As we discussed in October, TSX Inc. and TMX Select Inc. recently proposed the implementation of cancel on disconnect functionality that would provide the automatic cancellation of orders in the event of involuntary loss of connectivity between TMX and a client site. The TSX and TMX Select received no comment letters on their proposal and have now stated that they will publish a notice setting out the implementation date of the functionality.
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