The Ontario Securities Commission (OSC) yesterday announced the publication of its 2012 Annual Report. The report reviews the OSC's activities in 2011-12, including with respect to policy initiatives and enforcement.
Our readers will recall that, as we discussed in January of 2011, the OSC published a staff notice earlier this year advising of its review of shareholder democracy issues, including director elections, say-on-pay and the effectiveness of the process voting system. This was followed by the TSX’s publication of proposed amendments its rules to, among other things, require issuers listed on the TSX to elect directors individually, hold annual elections for all directors, disclose annually whether they have adopted a majority voting policy and if not, explain why not, and advise the TSX if a director receives a majority of "withhold" votes.
The OSC revisits these issues in its Annual Report, highlighting that shareholders “want the OSC to facilitate shareholder empowerment concerning significant decisions about governance, compensation and transactional matters involving reporting issuers” and that the OSC is considering specific policy initiatives that would strengthen the role of shareholders in uncontested director elections. Stating that reporting issuers are “encouraged to adopt majority-voting polices” and that it supports the TSX’s initiatives, the report notes that the OSC and TSX are discussing further steps to ensure that all TSX-listed issuers adopt majority-voting polices within a reasonable time frame.
The report also notes that the OSC is currently investigating concerns about the transparency, efficiency and accountability of the proxy-voting system and believes that there is a need for “greater regulatory involvement” so as to identify specific concerns and potential solutions that may require regulatory action.
With respect to other policy initiatives, the report discusses the creation of a new Research and Analysis Group whose aim is to increase the OSC’s understanding of activities, trends and risks in the market and issues facing investors. Projects currently in progress under the mandate of this group include:
- Research on how many Canadians qualify for the current accredited investor thresholds;
- A review of exempt market activity to better understand how the exempt market is used to raise capital; and
- A project to gauge the extent of broker internalization of order flows in Canada
Other activities reviewed include the OSC’s Emerging Markets Issuers Review and the Maple Group Acquisition of the TMX Group. The report also includes useful statistics on the financial wealth of Ontario investors, comparative volumes and activities represented by securities marketplaces generally and specifically the derivatives market in Ontario, and the concentration of TSX-listed exchange-traded funds or ETFs.
Specifically on the topic of enforcement, the OSC notes that its staff have made it a priority to pursue cases in court where appropriate and that during the last year, staff secured ten jail sentences for breaches of OSC orders or violations of the Securities Act. Meanwhile, staff commenced 24 proceedings before OSC administrative tribunals in 2011-12 and concluded 39 settlements and contested hearings, imposing a total of $39 million in administrative penalties, disgorgement orders and settlement amounts. To assist parties appearing before adjudicative panels, the report reminds market participants of the OSC’s Guide to Enforcement Proceedings and Frequently Asked Questions Regarding Hearings that were published in 2011-2012.