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Posted on June 7, 2013
The Ontario Securities Commission yesterday published proposed rules that would require that all over-the-counter derivative transactions be reported to trade repositories. While the proposals are ultimately based on the draft model rules released by the CSA in December 2012, modifications were made to, among other things, clarify the treatment of physical commodities, limit the definition of "local counterparty" and clarify the reporting and recordkeeping requirements.
The comment period on the proposed rules expires on September 6, 2013. For more information, see proposed OSC Rule 91-506 Derivatives: Product Determination and OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting.
Posted on May 31, 2013
Yesterday, the Canadian Securities Administrators (CSA) published final amendments to their securities rules that will expand the scope of marketing activities that can be conducted in connection with prospectus offerings .
The amendments to National Instrument 41-101 General Prospectus Requirements and National Instrument 44-101 Short Form Prospectus Distributions expressly codify permissible “pre-marketing” and “marketing” activities that can be conducted prior to and after the filing of a preliminary short or long form prospectus. Not only do these amendments ease restrictions on the types of activities that can be conducted, they also expressly acknowledge and codify various marketing activities in a manner that better reflects the practical reality of how offerings are marketed.
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Posted on May 24, 2013
Darin Renton -
The Investment Funds Branch of the Ontario Securities Commission recently released its latest issue of the Investment Fund Practitioner, dated May 2013. The publication provides an overview of issues identified by the Branch arising from prospectus filings, exemptive relief applications and continuous disclosure documents filed by investment funds.
Of particular interest, Branch staff are looking at whether an issuer investing in non-guaranteed mortgages is, in substance, a corporate issuer rather than an investment fund. In response to an increase in the number of non-redeemable investment funds investing all or most of their assets in pools of non-guaranteed mortgages (also referred to as mortgage investment corporations or MICs), staff have begun to examine the substance of such transactions. According to the Practitioner, any degree of control or active involvement by the mortgage originator or service provider in the formation or operation of the non-redeemable investment fund or portfolio of the fund will cause staff to question whether the issuer is an investment fund. While further guidance on the issue is expected, the Branch recommends that counsel contact staff at an early stage of planning in these types of situations.
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Posted on May 23, 2013
The OSC announced today that amendments to the registration, prospectus and continuous disclosure rules related to National Instrument 25-101 Designated Rating Organizations have received Ministerial approval. As we've previously discussed, the amendments are intended to fully implement the new regulatory regime surrounding designated rating organizations pursuant to NI 25-101 Designated Rating Organizations .
The amendments come into force on May 31, 2013.
Posted on May 16, 2013
The Ontario Securities Commission announced today that Chicago Mercantile Exchange Inc. has applied for an exemption from the requirement to be recognized as a clearing agency on the basis that it is subject to an appropriate regulatory and oversight regime in its home jurisdiction. The OSC is thus publishing for comment a draft order that would provide such an exemption. The OSC's criteria for exemption from recognition are included as a schedule to the draft order and comments are being accepted until June 16, 2013.
Posted on May 15, 2013
The Ontario Securities Commission has announced that it will be hosting a roundtable discussion on June 11 to obtain input from investors regarding investing in small and medium sized enterprises and start-ups. As we discussed in December, the OSC is currently considering a number of new capital raising prospectus exemptions to address the desire among some in the investing community to increase access to capital for issuers and to increase investment opportunities. The comment period in respect of the OSC's most recent consultation paper on the subject ended on March 8. The topics for discussion at the roundtable, meanwhile, include crowdfunding, as well as the type of information investors would require in order to make investment decisions.
Posted on May 9, 2013
The Ontario Securities Commission announced today that Ministerial approval has been received with respect to the prospectus rule amendments released earlier this year that are intended to clarify certain provisions, address gaps, streamline requirements and codify prospectus relief that has been granted in the past. Amendments to the requirements and related forms respecting scholarship plans, first announced in January, were also approved.
Most of the amendments come into force on May 14, 2013. Those regarding scholarship plans come into force on May 31.
Posted on May 3, 2013
Ken Ottenbreit and Ralph Hipsher -
As we initially discussed in an earlier post, on April 23 the Canadian Securities Administrators issued a decision providing a specified group of dealers limited exemptive relief (the Relief) from certain disclosure requirements under Canadian securities laws otherwise applicable where a foreign prospectus or offering memorandum (a Foreign Offering Document) is delivered by a dealer to a Canadian “permitted client” in connection with a private placement of foreign securities in Canada.
While any efforts to streamline the disclosure requirements applicable to private placements into Canada are certainly welcome, the Relief has limitations and imposes specific compliance obligations. Although the Relief may be helpful in resolving some of the timing concerns associated with extending certain qualified foreign offerings to Canadian “permitted clients”, it also imposes a number of conditions and requirements that will require advance planning and monitoring to maintain eligibility and to ensure there are no time delays in the preparation and delivery of offering documents.
Among the significant conditions and requirements that may impede the usefulness of the Relief are the requirement to satisfy certain disclosure standards applicable to U.S. registered offerings, inter-syndicate restrictions applicable to dealers not qualified under the Relief, additional compliance obligations associated with the requisite client notice – return receipt requirement and the additional monthly reporting of transaction information to the Canadian securities regulators.
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Posted on May 3, 2013
As we discussed earlier this year, the TSX Venture Exchange in January extended temporary relief from certain pricing requirements related to private placements. The TSX-V has now modified the relief and extended its application until August 31, 2013.
Specifically, the requirement that at least 75% of the private placement must be subscribed for by parties that are not related to the issuer has been changed to permit up to $200,000 in gross proceeds to be raised from related parties without any arm's length component. In cases where more than an aggregate of $200,000 is to be raised from related parties, at least 75% of the additional amounts must come from parties not related to the issuer. The relief also clarifies that capital pool companies may not rely on the relief.
Posted on April 25, 2013
Ken Ottenbreit -
On April 23, 2013, the Ontario Securities Commission issued an exemptive relief order exempting certain U.S. broker-dealers from having to provide certain stipulated “wrapper” disclosure in connection with specified private placements. Typically, when securities are offered to Canadian purchasers on a prospectus exempt basis and an offering document constituting an “offering memorandum” is provided, disclosure that is required to be included in the offering memorandum under Canadian securities laws is provided in a Canadian wrapper.
Under the Order, the OSC (on behalf of other Canadian regulators) has exempted the applicant dealers from the requirement to include certain prescribed disclosure relating to statutory rights of action and underwriting conflicts. Notably, the relief is only available if the purchaser is a “permitted client” (as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations), the securities are offered primarily in a foreign jurisdiction and (i) the issuer is incorporated, formed or created under the laws of a foreign jurisdiction, has its head office or principal executive office outside of Canada and is not a reporting issuer in Canada, or (ii) the securities are issued or guaranteed by a foreign government.
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Posted on April 16, 2013
Last week, the Investment Industry Regulatory Organization of Canada released draft guidance on the use and management of stop loss orders. While IIROC's 2011 guidance on best execution addressed the management of stop loss orders in an attempt to prevent such orders from executing at "clearly erroneous" prices, regulatory intervention has still been required in a number of cases.
According to IIROC, the disruption of a fair and orderly market could occur where the execution of an order would result in the trigger of a single stock circuit breaker or exceed the "no touch zone" limits for which there will generally be no regulatory intervention. With IIROC considering all stop loss orders without a reasonable limit price to be "inherently risky in fast moving markets", the guidance would encourage that Participants require limit prices on all stop loss orders, especially in cases of automated handling of stop loss orders.
The proposed guidance also considers the expectations when "booking" a stop loss order on a marketplace, the ongoing regulatory expectations respecting stop loss orders that have been booked, and the expectations if execution of a triggered stop loss order is handled manually. IIROC also states that while it is not prohibiting stop loss orders that when triggered become market orders, it is considering doing so in the future. For more information, see IIROC Notice 13-0106.
Posted on April 10, 2013
As we discussed earlier this year, IIROC has announced that the requirement to report "trade-for-trade" extended failed trades will become effective on April 15, 2013. Yesterday, IIROC provided an update regarding implementation, announcing that firm administrators can access the system between April 9 and April 15 to set up the required users in advance of implementation. For more information, see IIROC Notice 13-0100.
Posted on March 28, 2013
Joel Binder -
The Canadian Securities Administrators yesterday proposed changes to National Instrument 81-102 Mutual Funds (NI 81-102) that would introduce core operational requirements for publicly offered non-redeemable investment funds generally analogous to the requirements applicable to mutual funds.
This "Phase 2" of the CSA's Modernization of Investment Fund Product Regulation Project involves significant changes to the regulation of non-redeemable investment funds. Key elements of the proposals include (i) extending the application of investment restrictions under NI 81-102 to non-redeemable investment funds; (ii) imposing a 10% concentration restriction (with fixed portfolio ETFs permitted to exceed this limit); (iii) limiting investments in physical commodities and specified derivatives with underlying interests in physical commodities; (iv) imposing a cash borrowing limit of up to 30% of NAV (and permitting borrowing only from "Canadian financial institutions" and limiting borrowing activities to cash borrowing only); and (v)limiting investments in mortgages to guaranteed mortgages only. In addition, dilutive securities issuances would be prohibited with specific prohibitions on the ability to issue warrants or similar securities.
Non-redeemable investment funds would also be prohibited from investing in other non-redeemable investment funds (fund-of-funds) while a larger portion of fund assets would be permitted to be invested in illiquid assets. The proposals would also impose a framework for securities lending, repurchases and reverse repurchases similar to that applicable to mutual funds and introduce new requirements for the manager to bear the organizational costs of launching a new fund, as well as prescribe requirements governing conflicts of interest and circumstances where regulatory and/or securityholder approval will be required for certain fund or management changes. Changes are also proposed to requirements for custodianship of assets, redemptions and prescribed prospectus disclosure.
While the proposals relate principally to non-redeemable investment funds, some of the proposed amendments would also impact mutual funds.
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Posted on March 14, 2013
The Canadian Securities Administrators today announced the adoption of amendments to a number of national instruments and policies, including those respecting registration requirements, prospectus distributions and disclosure obligations, that would replace current references to "approved rating organization" and "approved credit rating organization" with "designated rating organization". Meanwhile, the terms "approved rating" and "approved credit rating" are being replaced with "designated rating".
The changes, initially proposed in July 2012, are intended to fully implement the new regulatory regime surrounding designated rating organizations pursuant to National Instrument 25-101 Designated Rating Organizations. In light of concerns from commenters (including members of our firm) that the amendments would create unintended adverse consequences for existing agreements that refer to "approved" credit ratings or "approved" credit rating organizations, the CSA has added language to the relevant instruments stating that it is reasonable to interpret the predecessor terms as having the same meaning as their respective successor terms.
The amendments come into force on May 31, 2013.
Posted on March 1, 2013
The Canadian Securities Administrators yesterday released the final version of amendments to NI 41-101 General Prospectus Requirements and related changes intended to address issues that have arisen with the prospectus rules since their implementation in March 2008. The changes are intended to clarify certain provisions, address gaps, streamline requirements and codify prospectus relief that has been granted in the past. Notably, these are not proposed amendments relating to “pre-marketing” that were published for comment in November 2011 (which we discussed in a series of posts in 2011 and 2012).
The amendments were originally published in July 2011, and a number of changes have been made in response to feedback received. Notably, the final amendments include changes to the requirements for filing PIFS or “personal information forms” (including the contents of the PIFS) and changes to the time limits for filing amendments to preliminary prospectuses and final prospectuses. The Companion Policy to NI 41-101 has also been amended in a number respects, including with respect to guidance on when the purchaser of a convertible, exchangeable or exercisable security should retain the benefit of an applicable statutory right of rescission.
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Posted on March 1, 2013
The CSA and IIROC issued a notice yesterday summarizing comments in response to their March 2012 joint notice regarding disclosure and transparency measures related to short sales and failed trades. Ultimately, the notice states that, pursuant to reviewing the comments received, data on short sales and failed trades, as well as international developments, CSA and IIROC staff do not believe that additional measures are needed or desirable at the present time. For more information, see IIROC Notice 13-0064.
Posted on February 27, 2013
Robert Carelli, Ramandeep Grewal, Jonathan Moncrieff and Zev Zelman -
Amendments to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101) are now in force. These amendments give reporting issuers and others the option to use the “notice-and-access” method to post proxy-related materials on a website (in addition to SEDAR) instead of having to mail materials to registered holders (under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102)) and to beneficial owners (under NI 54-101).
This is the second part of our two-part series which addresses the implementation of notice-and-access. In the first part, we provided a summary of how notice-and-access is intended to work and highlighted items that reporting issuers needed to prepare for in advance. In this part, we examine some of the issues and considerations involved with implementing notice-and-access.
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Posted on February 22, 2013
On February 20, IIROC released for comment a proposed new rule that would require reporting of debt transactions.
Specifically, under the proposal, each IIROC dealer member would have to report on a post-trade basis all debt market transactions executed by the dealer member, including those executed on an Alternative Trading System (ATS) or through an Inter-Dealer Bond Broker (IDBB).
For these purposes, “debt securities” would mean any securities that provide the holder with a legal right, in specified circumstances, to demand payment of the amount owing, including in respect of a debtor-creditor relationship. The fact that a security was issued in another country or denominated in a foreign currency would not disqualify it from being a debt security and the term would include securities with short-term maturities or mandatory tender periods such as commercial paper and floating rate notes as well as traditional notes and bonds. Debt securities, however, would not include derivative products that are not securities (e.g., futures contracts, interest-rate swaps).
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Posted on February 22, 2013
Earlier this week, IIROC released a guidance notice with regards to the new U.S. market-wide trading circuit breakers. Effective April 8, 2013, trading halt triggers in the U.S. will be based on declines of the S&P 500 Index of 7% (a Level 1 halt), 13% (Level 2) and 20% (Level 3).
For days that U.S. markets are closed and Canadian marketplaces are open, trading halts will be triggered based on similar percentage declines of the S&P/TSX Composite Index. The timing and duration of the market-wide trading halts will otherwise match U.S. requirements.
For more information, see IIROC Notice 13-0059.
Posted on February 22, 2013
On February 14, the Investment Industry Regulatory Organization of Canada (IIROC) confirmed that it considers certain trading strategies typically associated with high frequency trading (HTF) as manipulative and deceptive in respect of the Universal Market Integrity Rules.
Specifically, IIROC outlined that it considers layering, quote stuffing, quote manipulation, spoofing and abusive liquidity detection to contravene Rule 2.2 of UMIR. That said, IIROC's notice also clarified that it was not censuring algorithmic or high frequency trading generally, as some HFT strategies, for example, contribute to the quality of price discovery in a stock. Further, while the listed practices are generally associated with automated order systems, the notice stated that the offending strategies are prohibited whether conducted electronically or manually.
IIROC released a draft version of the guidance in July 2012. A summary of comments received to the draft guidance, as well as IIROC's responses, was also released. For more information, see IIROC Notice 13-0053 and Notice 13-0054.
Posted on February 14, 2013
Earlier this week, the British Columbia Securities Commission released for comment a proposed new prospectus exemption similar to the offering memorandum exemption found in NI 45-106 Prospectus and Registration Exemptions that would allow issuers (excluding reporting issuers, investment funds, mortgage investment entities and real estate issuers) to raise up to $500,000 without a prospectus.
Issuers relying on the exemption would only have to provide unaudited financial statements, so long as certain conditions were met. Specifically, issuers would have to include a bold warning on the front page of the offering memorandum and would not be able to distribute complex securities. Further, the exemption would limit investors to investments of no more than $2,000 in any 12-month period. According to the BCSC, the new exemption would address the cost of complying with the OM exemption's financial statement requirements, and would be consistent with the CSA's new OM-form exemption announced in December 2012, with the exception that British Columbia's proposal would require the issuer to identify use of the exemption when filing Form 45-106F6. The CSA's OM-form exemption does not apply to British Columbia or Ontario.
The BCSC is accepting comments on the proposed exemption until April 12, and is specifically asking a number of questions regarding respondents' experience with current exemptions.
As we've discussed in the past, the Canadian Securities Administrators are currently reviewing potential prospectus exemptions, as is the Ontario Securities Commission. Whether British Columbia intends to continue to participate with the CSA's consideration of potential exemptions, or whether it will strike out on its own, remains to be seen.
Posted on February 14, 2013
Adrian C. Lang, Vanessa Voakes and Genna Wood -
In the recently released decision of Justice Perell in Tucci v. Smart Technologies, secondary market purchasers were excluded from a proposed plaintiff class seeking damages stemming from an alleged misrepresentation in a prospectus under s. 130(1) of the Ontario Securities Act (the “OSA”). This decision confirms the conventional interpretation of s. 130(1), which restricts the statutory cause of action to primary market purchasers.
Background
On July 15, 2010, Smart Technologies, a maker of educational interactive technology products, filed a final Supplemental Prep Prospectus, for its initial public offering (the “IPO”). The IPO closed on July, 20, 2010, and purchasers in the IPO received their Class A shares. However, the Class A shares had also begun trading in the secondary market on July 15, 2010 during the IPO. The proposed plaintiffs argued that the disclosure in the offering materials was materially deficient, and that they suffered damages by acquiring Smart Technologies shares at an inflated price under s. 130 of the OSA (and its provincial equivalents) when a correction regarding disclosure was made on November 9, 2010.
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Posted on February 7, 2013
Ken Ottenbreit and Terence Doherty -
The Investment Industry Regulatory Organization of Canada today announced that it has decided not to proceed with its proposed new "Restricted Dealer Member" class of IIROC member. IIROC initially proposed the new dealer category in July 2012 in response to policy concerns regarding exempt market dealers, typically based in the U.S., that are conducting brokerage activities in Canada. IIROC specifically cited the resistance from those commenting on the initial proposal as the reason behind its decision to withdraw from its plan to establish the new category of dealer. Summaries of the comments IIROC received are included in the notice released today.
Concerns regarding the scope of brokerage activities conducted by some firms through the EMD registration category, however, remain among regulators. In light of IIROC's decision, the Canadian Securities Administrators released a notice stating that they intend to publish proposed amendments to NI 31-103 later this year that would prohibit EMDs from conducting brokerage activities. The CSA outlined its concerns on the subject in September 2011. Thus, despite the fact that IIROC has decided not to move forward with a new category, EMDs that are currently conducting brokerage activities in accordance with the terms and conditions of their registration will likely be subject to restrictions in the near future. In the interim, EMDs (and Restricted Dealers) will have their registration and any related exemptive relief extended to the date the NI 31-103 amendments are effective.
For more information, see IIROC Notice 13-0042 and CSA Staff Notice 31-333.
Posted on February 7, 2013
The Investment Industry Regulatory Organization of Canada yesterday released recommendations and best practices respecting the distribution by dealers to clients of non-arm's length investment products. Such products include those issued by: the dealer itself, an issuer or selling securityholder with which the dealer does not deal at arm's length, or an issuer or selling securityholder to which a dealer is otherwise connected or related.
According to IIROC, dealers are expected to follow a sequence of steps in order to satisfy their obligations in respect of the distribution of non-arm's length products, namely: (i) conducting product due diligence; (ii) completing a conflict of interest assessment; and (ii) assessing client-specific suitability. IIROC also stated that compliance reviews will focus on dealers' written policies and procedures, with the guidance providing a list of particulars expected in written policies.
IIROC originally published for comment draft expectations in February 2010. A summary of comments received, and IIROC's responses, was also published yesterday. For more information, see IIROC Notice 13-0039 and Notice 13-0040.
Posted on January 25, 2013
The Ontario Securities Commission announced yesterday that it is extending the consultation period on potential new capital-raising prospectus exemptions. As we've previously discussed, the OSC initiated a consultative process in December with release of a paper on the subject. For more information, see OSC Staff Notice 45-711.
Posted on January 25, 2013
In mid-December, the Toronto Venture Exchange extended temporary relief from certain pricing requirements related to private placements. Under the relief, issuers conducting private placements may, under certain conditions, offer shares at a price below the regulated minimum of $0.05 per share, or convertible debentures below the regulated minimum of $0.10 per share.
In order to rely on the relief, an issuer must, among other things, demonstrate immediate or imminent financial hardship and that it does not have the time or resources necessary to complete a share consolidation prior to closing of the private placement, disseminate a news release providing an itemized breakdown of the use of proceeds and provide the TSX-V with a certificate in prescribed form, signed by the CEO or CFO attesting to the need for relief. At least 75% of the private placement must be subscribed for by parties that are not related to the issuer, and up to $50,000 of the gross proceeds raised in reliance on the relief may be used for general working capital purposes.
The relief, initially issued in August 2012 will expire on April 30, 2013.
Posted on January 25, 2013
The Canadian Securities Administrators released a staff notice last week that provides prospective Advising Representatives (ARs) and Associate Advising Representatives (AARs) with guidance regarding the relevant investment management experience required to qualify for registration. The notice also provides a summary of decisions made by the CSA based on various fact situations.
Among the other guidance provided, the CSA state that it is unlikely that client relationship management experience would qualify an applicant for AR registration, while corporate finance experience and consulting experience with portfolio manager selection and monitoring may qualify an applicant for AR registration.
Ultimately, the notice suggests that prospective applicants (of which there have been over 2500 since the advent of NI 31-103) consider the information provided in the notice in deciding whether to apply for registration and when preparing an application. For more information, see CSA Staff Notice 31-332.
Posted on January 23, 2013
Keith Chatwin -
On December 31, 2012, the Alberta Securities Commission replaced Blanket Order 91-503 with Blanket Order 91-505 Over-the-Counter Derivatives.
As we discussed in an earlier post, an initial version of Rule 91-505 was published in February 2011, with a revised rule proposed in October 2012. As we discussed at the time, the revised proposal reintroduced the concept of “qualified parties” and created an exemption from the prospectus and registration requirements for all over-the-counter futures contracts where each party is a qualified party, subject to the potential for incremental future requirements as may be imposed as a result of the CSA’s ongoing initiatives relating to trade reporting, clearing and other associated matters in relation to derivatives.
The final Blanket Order is consistent with the form of the October proposal.
Posted on January 17, 2013
Keith Chatwin -
On December 20, 2012, the Canadian Securities Administrators, excluding Ontario and British Columbia, announced that they would be publishing harmonized interim local orders to provide exemptions from certain disclosure requirements relating to the use of the "OM exemption" under NI 45-106 and the use of Form 45-106F2 Offering memorandum for non-qualifying issuers. This new "OM-form exemption" is intended to facilitate capital raising for early stage and other small and medium sized businesses. The harmonized interim local orders will not apply in Ontario or B.C. The OM exemption was never available in Ontario and neither the OSC nor the BCSC are party to the multilateral staff notice. Local orders have now been issued in most of the participating jurisdictions.
Among other limitations, the OM-form exemption will not be available to issuers who are reporting issuers (either in a jurisdiction of Canada or the equivalent in a foreign jurisdiction) or to investment funds, mortgage investment entities or those engaged in the real estate business.
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Posted on January 15, 2013
IIROC announced this week that the requirement to report "trade-for-trade" extended failed trades will be implemented on April 15, 2013.
As we've previously discussed, the requirement for Participants and Access Persons to report trade variations and cancellations, as well as extended failed trades with respect to trades executed on a marketplace that settle through the continuous net settlement facilities of CDS, took effect on June 1, 2011. The requirement to file extended failed trade reports did not initially extend to trades using the trade-for-trade settlement facility of CDS. As such, such trades will now also be captured by the requirement to report failed trades that are unresolved for more than 10 days after the settlement date.
IIROC's notice also provides a set of questions and answers regarding the new requirement. For more information, see IIROC Notice 13-0014.
Posted on January 11, 2013
Earlier this week, IIROC published the results of a dealer survey on the use of business titles and financial designations and provided draft guidance on the subject.
According to IIROC, the results of the survey suggest that a wide variety of business titles and financial designations are currently used by licensed representatives within and across firms, including many that do not provide a "meaningful" description of the types of services or products provided to clients. Meanwhile, only about 40% of responding firms had specific written policies and procedures in place respecting the use of titles and financial designations for licensed representatives. That said, 87% of responding firms did have a review and approval process for the use of such titles and designations.
The proposed guidance, meanwhile, communicates IIROC's expectations that firms will implement policies and procedures on business titles and the use of financial designations that will "promote greater transparency" for clients. To increase public understanding, IIROC suggests that business titles be coupled with an explanation of an individual's IIROC approval category and corresponding proficiencies. With respect to the approval of financial designations, IIROC states that a number of factors should be considered, including whether the designation has a rigorous curriculum, a continuing education requirement and a public disciplinary process.
IIROC is accepting comments on its draft guidance until March 9, 2013. For more information, see IIROC Notice 13-0005.
Posted on January 11, 2013
The Canadian Securities Administrators yesterday announced its final amendments to NI 41-101 General Prospectus Requirements, the companion policy and related forms to enhance the prospectus disclosure provided by scholarship plans. Specifically, the amendments introduce a new prospectus form that is tailored to the unique features and complexities of such plans and that will require that key information be provided to investors in a simple and accessible format.
The CSA first published its proposals in March 2010 and released a revised set of amendments in November 2011. Subject to Ministerial approval, the final amendments will come into force on May 31, 2013.
Posted on January 10, 2013
Last month, the Investment Industry Regulatory Organization of Canada published the first two phases of a study into high-frequency trading (HFT) in Canadian equity markets. The report, which provides a statistical analysis of the trading activity of a study group of traders with relatively high order-to-trade (HOT) ratios between August 1 and October 31, 2011, is intended to assist regulators in determining the most appropriate response to the growth of HFT over the last few years.
Ultimately, the report found that 11% of all traders during the study period were HOT traders and that this group accounted for 22% of the total share volume, 32% of dollar value and 42% of all trades. Among other things, the study also found that the HOT group, which traded predominantly in TSX-listed securities trading between $1 and $5, was responsible for a greater percentage of dark activity than lit, a large number of orders cancelled in comparison to trades executed and used the Anonymous marker more often than other market participants.
The third part of the study is intended to assess the impact of HFT activity with respect to market quality and integrity. Concurrent with the release of its report, IIROC also published a proposed request for assistance, which includes several questions IIROC seeks to address, from those with demonstrated expertise in the area of equity market structure. According to IIROC, the work of outside experts will supplement the internal analysis being undertaken by the organization.
Comments on the proposed request for assistance will be accepted until January 11, 2013. For more information, see IIROC Notice 12-0374.
Posted on January 4, 2013
The Investment Industry Regulatory Organization of Canada (IIROC) this week published its circuit breakers for the first quarter of 2013, which are set in coordination with those in 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 Q1 2013 are 1,300 points, 2,650 points and 3,950 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%) - 1,250 points; Level 2 (20%) - 2,450 points and Level 3 (30%) - 3,700 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. For more information, see IIROC Notice 13-0002.
Posted on January 3, 2013
On December 20, the Canadian Securities Administrators released a set of responses to frequently asked questions regarding NI 23-103 Electronic Trading. As we've previously discussed, the instrument, designed to address the risks of electronic trading, will come into force on March 1 of this year.
The FAQ released by the CSA covers such issues as the instrument's scope of application, pre-trade risk management and supervisory controls, monitoring of trading activity and automated order systems.
Posted on December 19, 2012
Ivan T. Grbešić -
The TSX and TSX-V issued a joint consultation paper earlier this week intended to identify the potential risks associated with listing emerging market issuers and provide preliminary guidance to issuers with respect to applicable listing considerations.
Specifically, the paper identifies a number of risks applicable to emerging market issuers, including with respect to (i) management and corporate governance concerns due to management's potential lack of familiarity with Canadian regulatory requirements or a lack of familiarity with the laws and requirements of the jurisdiction in which the issuer carries on business; (ii) unsatisfactory financial reporting as a result of auditors lacking sufficient expertise in the applicable jurisdiction; (iii) non-traditional corporate/capital structures due to foreign ownership restrictions in certain jurisdictions; and (iv) legal concerns relating to title and the ability to conduct operations.
The consultation paper thus asks for stakeholder input on a number of specific questions concerning the issues identified above, as well as with respect to the definition of "emerging market issuer", other potential risks not identified in the paper and related party transactions. Feedback is also requested on the issues of sponsorship requirements (which the paper suggests will not be waived in the case of emerging market issuers listing on the TSX) and potential supplemental ongoing requirements, which may ultimately include pre-clearance of a change of auditors, new board members or new senior management.
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Posted on December 19, 2012
The Investment Industry Regulatory Organization of Canada yesterday released a guidance note setting out its expectations regarding application of know your client and suitability obligations to dealings in principal protected notes (PPNs) by IIROC dealer members. The guidance follows publication of a CSA staff notice (excluding Quebec) this past August that described the CSA's expectations that deposit-taking institutions will use registered dealers and individuals to distribute all PPNs that are not “Specified PPNs,” being those with a term of five years or less.
IIROC Dealer Member Rule 18.14 allows registered representatives and investment representatives to engage in another gainful occupation provided certain conditions are met, effectively permitting dual employment with the investment dealer and an affiliated financial institution. According to IIROC, the sale of PPNs by such a dually employed individual could create client confusion as to which entity the client is dealing with (the financial institution or the IIROC dealer) and would result in the application of know your client and suitability protections dependent on the distribution channel.
Consequently, IIROC states that all sales of PPNs by an IIROC registered individual must be transacted solely in their capacity as an employee or agent of the dealer member. IIROC also expects that all dealers will have policies and procedures to give this expectation effect and to ensure adequate supervision and compliance oversight. For more information, see IIROC Notice 12-0384.
Posted on December 14, 2012
Simon Romano -
The Ontario Securities Commission released a paper today intended to initiate a broad consultative process to consider a number of potential new capital raising prospectus exemptions.
Specifically, the consultation paper canvasses the exemptions currently available in various jurisdictions, including the U.S., Australia and the U.K. These exemptions are generally based on (i) investor attributes (such as income and financial assets); (ii) relationships with the issuer (such as the family, friends and business associates exemption available in jurisdictions other than Ontario); (iii) investment size (such as Ontario's $150,000 minimum investment amount exemption); (iv) disclosure; (v) "crowdfunding"; and (vi) offering size.
With respect to "crowdfunding" (which is the popular term for funding a project or venture through small amounts of money raised from a large number of people over the internet via an internet portal intermediary), the potential for an exemption is examined using the provisions of the U.S. JOBS Act as a basis for discussion. Issues considered include issuer restrictions, investor protection measures, and the registration of funding portals. The paper also explores a potential OM exemption (which, unlike other Canadian jurisdictions, is not available in Ontario under NI 45-106) with a $1.5 million limit on the amount of capital that could be raised by an issuer in a 12-month period and a limit on a purchaser's annual investment of $10,000. The concept OM exemption is not intended to be a recommendation and was provided by the OSC for discussion purposes.
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Posted on December 14, 2012
Last week, the Investment Industry Regulatory Organization of Canada announced amendments to UMIR intended to align IIROC's trading supervisory requirements with the requirements found in NI 23-103 Electronic Trading. As we've discussed previously on this blog, NI 23-103 and its Companion Policy were recently adopted in order to address the risks of electronic trading, specifically with respect to credit risk, market integrity risk, technology or systems risk and regulatory arbitrage risk
The amendments to UMIR, meanwhile, are intended to: (i) expand existing trading supervision obligations to specifically address the risks associated with electronic trading ; (ii) set out specific supervisory provisions related to the use of automated order systems; (iii) clarify the circumstances under which a trade may be cancelled, varied or corrected with notice to, or consent of, a market regulator; (iv) allow for a participant to authorize an investment dealer to perform on its behalf the setting or adjusting of a specific risk management or supervisory control, policy or procedure, or for a participant to use the services of a third party provider; and (v) establish certain gatekeeper obligations for participants who have authorized an investment dealer to perform on its behalf the setting or adjustment of a risk management or supervisory control, policy or procedure.
The amendments become effective on March 1, 2013 and, while most requirements must be implemented by that date, IIROC will allow participants and access persons until May 31, 2013 to complete testing and implementation of automated controls. Meanwhile, IIROC also released guidance that address the amended provisions. For more information, see IIROC Notices 12-0363 and 12-0364.
Posted on December 14, 2012
The Investment Industry Regulatory Organization of Canada (IIROC) released guidance earlier this week on the meaning of "date of the offering" in order to clarify how to determine the length of a quiet period during which time IIROC Dealer Members are prohibited from issuing research relating to equity or equity-related securities when acting as manager or co-manager in an offering of securities. Specifically, Rule 3400 prohibits dealers from issuing research for 40 calendar days following the date of the offering for an IPO or ten days in the case of a secondary offering.
According to IIROC, for the purposes of the rule, the "date of the offering" is (i) the date of the final receipt for the prospectus in the case of prospectus offerings; (ii) the date of pricing in the case of private placements; and (iii) the date of the prospectus supplement in the case of shelf-offerings.
Further, the count for the quiet periods starts on the day after the date of the offering, thereby excluding the actual date of the offering from the count.
For more information, see IIROC Notice 12-0369.
Posted on December 14, 2012
The Canadian Securities Administrators yesterday released a discussion paper intended to solicit feedback on the structure of mutual fund fees in Canada. In addition to providing an overview of the current mutual fund fee structure, the paper identifies investor protection and fairness issues resulting from the current structure, and also considers the potential regulatory options available to the CSA to address the identified issues.
Specifically, the paper considers such issues as the lack of investor understanding of fund costs, potential conflicts of interest at the mutual fund manufacturer and advisor levels, the potential for cross-subsidization of commission costs, alignment of advisor compensation and services, and the potential for low-cost options for do-it-yourself investors.
In response to the identified issues, the CSA state that they may consider a number of potential regulatory changes, including: (i) establishing a minimum level of ongoing services that advisors would have to provide investors in exchange for payment of trailing commissions; (ii) requiring a standard class for DIY investors with no or reduced trailing commissions; (iii) requiring that the trailing commission component of a mutual fund's management fee be unbundled and charged and disclosed as a separate fee; (iv) setting a maximum limit on the portion of mutual fund assets that could be used to pay trailing commissions to advisors; and (v) implementing additional standards or duties for advisors.
Also of note, the impact of any potential regulatory changes could affect stakeholders outside the mutual fund industry. Specifically, the CSA state that while the paper focuses on mutual funds, the regulatory changes may also eventually capture investment funds and comparable securities products.
The CSA are accepting feedback on the consultation paper until April 12, 2013. For more information, see CSA Discussion Paper 81-407.
Posted on December 14, 2012
Parallel orders have been issued in Quebec, British Columbia and Alberta to provide temporary relief from the requirement in NI 23-103 Electronic Trading that a marketplace participant's risk management and supervisory controls, policies and procedures be reasonably designed to systematically limit the financial exposure of the marketplace participant.
Amid concerns that marketplace participants may not be able to adequately complete testing of the automated pre-trade risk controls before the instrument takes effect on March 1, 2013, the parallel orders will apply if a marketplace participant is testing automated pre-trade risk controls by March 1, 2013. The relief applies until May 31, 2013. For more information, see Multilateral CSA Staff Notice 23-313.
Posted on December 7, 2012
The Canadian Securities Administrators yesterday published for comment model provincial rules to introduce a framework for the regulation of derivatives across Canada. Specifically, the model rules would set out the scope of derivatives products and provide for regulations respecting trade repositories and derivatives data reporting. The model rules, which are based on Ontario's Securities Act, are intended to provide a "responsive and flexible" foundation for derivatives regulation.
Comments on the model rules are being accepted until February 4, 2013. Check back next week for further commentary.
Posted on December 7, 2012
The OSC yesterday announced the approval of amendments to IIROC's Dealer Member Rules that are intended to promote compliant trade matching practices and eliminate the sending of duplicative trade related correspondence to clients.
Specifically, amendments to Rule 800.49 will seek to provide dealers with clarity in respect of broker-to-broker trade reporting and matching requirements, while amendments to Rule 200.1(h) will provide an exemption from the trade confirmation requirement in cases where certain conditions are met.
The amendments were originally proposed in April 2010.
Posted on December 5, 2012
Margaret Grottenthaler -
The uncertainty around the extent of the extra-territorial reach of the Dodd-Frank Act into the business of Canadian and other non-U.S. market participants has been a major concern. Regulators are well aware of this concern and have their own reasons to want to reduce regulatory conflict. It is top of their agenda as well. To that end, on November 28, regulatory authorities from various international jurisdictions (including the OSC and AMF) met in New York to discuss reform of the cross-border OTC derivatives market. It looks as though progress was made but much work is yet to be done.
While the authorities noted that complete harmonization across jurisdictions would be difficult, their joint release identified the need to reduce regulatory uncertainty and reduce the application of conflicting rules. Ultimately, the meeting, which included representatives from the Ontario Securities Commission, Quebec's Autorité des marchés financiers, the Australian Securities and Investments Commission, Brazil's Comissão de Valores Mobiliários, the European Commission and European Securities and Markets Authority, Hong Kong's Securities and Futures Commission, Japan's Financial Services Agency, the Monetary Authority of Singapore, the Swiss Financial Market Supervisory Authority, and the U.S. Commodity Futures Trading Commission and Securities and Exchange Commission, was intended to continue moving towards the goal of an enhanced regime of OTC derivatives regulation, as pledged by G-20 leaders in 2009.
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Posted on November 30, 2012
Ramandeep Grewal -
The Canadian Securities Administrators yesterday announced the adoption of regulatory changes to improve the communications process between reporting issuers and shareholders. Specifically, the amendments would introduce a notice-and-access mechanism for reporting issuers to send proxy-related and other materials to shareholders, simplify the process of appointing beneficial owners as proxy holders and require reporting issuers to provide enhanced disclosure regarding the beneficial owner voting process.
The amendments, which include changes to NI 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuers, NI 51-102 Continuous Disclosure Obligations, and related forms and companion policies, were initially proposed in 2010 and republished in 2011. While the final amendments announced yesterday include changes to the 2011 proposals, the CSA have deemed the changes immaterial and are, thus, not republishing the amendments for further comment.
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Posted on November 29, 2012
Proxy advisory firm Glass Lewis recently released its Proxy Paper Guidelines for the 2013 proxy season for issuers listed in Canada. According to Glass Lewis, its research and advice is intended to encourage governance structures that will "drive performance, create shareholder value and maintain a proper tone at the top." Ultimately, the guidelines set out the key issues Glass Lewis will consider in making recommendations with respect to the election of directors, financial reporting, executive compensation, governance structure and environmental and social risk.
Election of Directors
According to the guidelines, boards that protect and enhance shareholders' best interests are those that (i) are independent; (ii) have directors with diverse backgrounds; (iii) have a record of positive performance; and (iv) have members with a breadth and depth of experience.
On the issue of board composition and director independence, the guidelines state that Glass Lewis will usually recommend that shareholders withhold votes for directors that (i) attend less than 75% of the board and/or key committee meetings; (ii) serve on the board while also serving as the issuer's CFO; (iii) serve on an "excessive" numbers of boards (although the definition of excessive is not provided); (iv) provided material professional services to the company during the past year, or whose immediate family member provided such services; (v) engage in commercial deals, including perk-type grants from the company, or whose immediate family member engaged in such deals; or (vi) have interlocking directorships with one of the company's executives.
Further, according to Glass Lewis, only independent directors should serve on a company's audit, compensation, nominating and governance committees, and the firm will generally recommend a withholding of votes from any insider or affiliated director seeking to be appointed to such a committee. While Glass Lewis does not generally recommend that shareholders withhold votes from chief executives that chair the board, the guidelines state that the roles should be separated. Meanwhile, an exception to independence standards is provided for controlled companies.
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Posted on November 22, 2012
Last week, ISS released its Canadian corporate governance policy updates for 2013. The updates, which reflect changes to its proxy voting policies for the upcoming proxy season, are effective for meetings held on or after February 1, 2013. As we discussed in a post earlier this month, ISS published proposed changes to its guidelines earlier this Fall that focused on pay for performance. While the final policies include the contemplated changes to the methodology to measure pay-for-performance alignment, the guidelines respecting slate voting, majority owned companies and advance notice requirements, among others, have also been updated.
Slate Voting
Key changes to ISS policies include an update to its recommendation regarding slate ballots. Specifically, the updated guidelines recommend withholding votes from all directors nominated by slate ballot, regardless of whether additional governance concerns have been identified. Further, the exemptions for companies newly graduated from the venture exchange or that commit to replacing slate director elections within a year have also been removed. The policy, however, does not apply to contested director elections. The main reason cited for this change in policy is the TSX's recently announced amendments that will prohibit single slate ballots (coming into effect on December 31, 2012) and a similar prohibition in the TSX-V's policies.
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Posted on November 15, 2012
The Ontario Securities Commission today announced that its staff have retained a consultant to analyze tools and controls with respect to electronic trading in Canada. Part of the consultant's work will include gathering information from market participants regarding the risks posed by electronic trading and the provision of direct electronic access (DEA). The notice also specifically asks interested participants to contact the OSC.
As we discussed last month, the CSA recently introduced proposed amendments to NI 23-103 Electronic Trading to impose requirements on participant dealers that provide direct electronic access and address the fact that the instrument, which comes into effect on March 1, 2013, does not currently include requirements regarding the provision of DEA.
According to the OSC, the analysis to be performed by the consultant will not impact the timelines for the proposed amendments to NI 23-103. For more information, see OSC Staff Notice 23-701.
Posted on November 8, 2012
The CSA today released a consultation paper that considers real-time market data fees in Canada and seeks input on addressing the issues identified by the regulators. The paper specifically discusses three main concerns raised by marketplace participants and data consumers, namely that: (i) market data fees are too high; (ii) high fees are a result of participants being part of a "captive market"; and (iii) the process surrounding fee proposals and changes to fee models should be more transparent.
Ultimately, the paper concludes that while TSX and TSX-V market data fees do not appear unreasonable, marketplaces with smaller market shares are charging fees that are high in relation to their share of trading activity. Meanwhile, the paper suggests that the data fees charged by marketplaces in Canada and the U.S. should ideally be closer. The CSA, however, recognize that such an outcome may be unrealistic considering the differences in regulatory environment, industry structure, scale and size of the two markets.
Potential options considered by the paper include capping fees for "core data", capping fees for data sold through an information processor, regulating consolidated market data fees charged by the information processor, capping consolidated data fees sold by marketplaces to all data vendors, mandating a data ultility to operate on a cost-recovery basis, and requiring marketplaces to publish for comment any amendments to market data fee schedules.
The consultation paper also sets out a number of specific questions for stakeholders to consider, and comments are being accepted until February 8, 2013. For more information, see CSA Staff Consultation Paper 21-401.
Posted on October 26, 2012
The Canadian Securities Administrators yesterday introduced proposed amendments to NI 23-103 Electronic Trading to impose requirements on participant dealers that provide direct electronic access (DEA). As we've discussed in the past, the CSA adopted NI 23-103, intended to address the risks of electronic trading, specifically with respect to credit risk, market integrity risk, technology or systems risk and regulatory arbitrage risk, earlier this year. However, the instrument, which comes into effect on March 1, 2013, did not include requirements regarding the provision of DEA. The proposals released yesterday are thus intended to address the need for appropriate controls to manage risks associated with providing DEA.
Specifically, the amendments would: (i) limit the registrants that may provide DEA to fully registered dealers, and limit those that may use DEA to portfolio managers and restricted portfolio managers (thereby excluding exempt market dealers); (ii) require dealers to establish, maintain and apply appropriate standards for providing DEA and assess and document whether each client meets the standards; (iii) require that dealers have a written agreement with each DEA client ; (iv) require dealers to determine what training their clients need to understand the marketplace and regulatory requirements; (v) require that dealers assign each DEA client a unique identifier; and (vi) generally only allow a DEA client to trade for its own account.
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Posted on October 25, 2012
The Canadian Securities Administrators today published a consultation paper that considers the desirability and feasibility of imposing a statutory fiduciary duty on advisers and dealers to act in the best interests of clients.
A proposed duty, or "best interests" standard, would be intended to address the CSA's five primary investor protection concerns related to the conduct of advisers and dealers, namely that (i) there may be an inadequate principled foundation for the standard of conduct owed to clients; (ii) the current standard of conduct may not fully account for the difference in information and financial literacy between retail clients and advisers/dealers; (iii) there is an expectation gap between investors and advisers/dealers as investors incorrectly assume that advisers and dealers must always provide advice in the client's best interest; (iv) while advisers and dealers must recommend suitable investments, the investments need not necessarily be in the client's best interest; and (v) the application in practice of current conflicts of interest rules may be less effective than intended. According to the CSA, acting in the client’s best interests means the dealer or adviser must ensure that client interests are paramount, services are performed reasonably prudently and clients are provided with full disclosure and not exploited.
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Posted on October 24, 2012
On October 22, IIROC released draft guidance withdrawing its position that clearing arrangements are a type of introducing broker / carrying broker arrangement to which IIROC Dealer Rule 35 applies. In the absence of applicable rules, the notice sets out the practical considerations, outsourcing due diligence obligations and IIROC notification requirements that would apply to clearing arrangements. As we discussed in an earlier post, IIROC also released draft guidance regarding outsourcing arrangements on the same day. Comments on the notice are being accepted until January 20, 2013. For more information, see IIROC Notice 12-0312.
Posted on October 18, 2012
Andrew Bozzato and David Weinberger -
The Toronto Stock Exchange recently announced proposed amendments to the TSX Company Manual that would require all TSX-listed issuers to elect directors by majority vote (the “Proposed Amendments”). If the Proposed Amendments are adopted, security holders will effectively be required to vote “for” or “against” each individual board nominee, in contrast to the default plurality voting under Canadian corporate law whereby security holders voting by proxy either vote “for” or “withhold” when electing directors.
Under the Proposed Amendments, the TSX would require that all listed issuers adopt majority voting for uncontested director elections.1 This could be implemented by the board’s adoption of a majority voting policy, as opposed to formally amending an issuer’s constating documents. Where a majority voting policy is adopted, security holders voting by proxy would still vote “for” or “withhold” for each individual board nominee, as required by corporate law. However, “withhold” votes would be considered “against” votes and counted as part of the total votes cast. The type of majority voting policy described in the Proposed Amendments would require that (i) a director who received a majority of “withhold” votes tender his/her resignation immediately following the meeting, to be effective upon acceptance by the board; and (ii) the board consider whether to accept the resignation and disclose its decision within 90 days of the receipt of such resignation. Under the existing voting regime, even if a director receives a majority of “withhold” votes in an uncontested election, the director is still elected under corporate law for the ensuing term.
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Posted on October 18, 2012
The TSX last week published proposed amendments to its Company Manual and to the TSX Rules to clarify matters related to appeals of listing-related decisions, and to ensure consistency between the Manual and the Rules with respect to appeals.
Specifically, the proposed changes would (i) address the composition of appeal panels; (ii) codify the existing practice of requiring written requests for appeals and submissions; (iii) clarify that certain decisions may be delegated to listing managers; (iv) clarify the time frame for appeals; and (v) clarify the rules regarding suspension and termination of participating organizations.
Comments on the proposals are being accepted until November 12.
Posted on October 16, 2012
Keith Chatwin -
In our blog post of March 11, 2011, we discussed the proposed repeal by the Alberta Securities Commission of Blanket Order 91-503 and its replacement with Rule 91-505 Over-the-Counter Derivatives. At the time, and in the context of ongoing efforts by the Canadian Securities Administrator to bring the regulation of OTC derivatives within the four corners of securities legislation to comply with G20 commitments, the proposed Rule 91-505 would have resulted in OTC derivatives and commodity futures contracts being considered "futures contracts" under the Securities Act (Alberta). Historically, under BO 91-503, such OTC derivatives and commodity futures contracts were exempted from the definition of “futures contract” and thereby not considered “securities” under the Securities Act.
In the context of the sea change in regulatory philosophy being undertaken by the CSA and reflected in proposed Rule 91-505, only a narrow registration exemption was proposed for OTC physical commodity contracts. The proposed Rule would have abandoned the current concept of prospectus and registration relief for a broad array of OTC transactions and commodity contracts between qualified parties.
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Posted on October 12, 2012
Simon Romano -
Effective October 15, 2012, IIROC's price restrictions that prohibit short sales on a “downtick” are being repealed. The repeal of the "tick test" has been in the works for a number of years, since similar action was taken by the U.S. Securities and Exchange Commission to repeal short sale restrictions in 2007. Although, unlike the U.S. rules, IIROC has not incorporated a circuit breaker that would trigger a tick test. In certain circumstances, however, a pre-borrow requirement for short sales, which requires a person entering the order to have made arrangements to borrow the securities required to settle the trade prior to the entry of the order, is imposed.
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Posted on October 11, 2012
The Ontario Securities Commission last week released a staff notice setting out the process for OSC Staff's review of the initial filings of entities applying to become recognized exchanges or alternative trading systems. The notice updates and replaces OSC Staff Notice 21-703, which was published in 2010. The notice also describes OSC Staff's expectations regarding the timing of a marketplace's commencement of operations and of the implementation of material system changes. Specific processes for the review of the information contained in Forms 21-101F1 and 21-101F2 were also published.
For more information, see OSC Staff Notice 21-706.
Posted on October 3, 2012
The Canadian Securities Administrators on Monday issued a news release to update stakeholders on efforts to reform Canada's OTC derivatives market to conform with G-20 commitments.
As we discussed earlier this year, the CSA released a consultation paper in June that proposed making central counterparty clearing of eligible OTC derivatives mandatory. While today's release reiterated Canadian regulators' commitment to CCP clearing, the CSA stated that market participants would be able to do so through any CCP that was recognized by Canadian authorities, including global CCPs. According to the CSA, "global CCPs will provide a safe, robust and resilient environment for clearing OTC derivatives" provided that they comply with appropriate international safeguards.
Posted on October 2, 2012
The Investment Industry Regulatory Organization of Canada (IIROC) yesterday published its circuit breakers for the fourth quarter of 2012, which are set in coordination with those in 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 Q4 2012 are 1,350 points, 2,700 points and 4,050 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%) - 1,250 points; Level 2 (20%) - 2,450 points and Level 3 (30%) - 3,700 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. For more information, see IIROC Notice 12-0285.
Posted on September 21, 2012
As we discussed in June, the CSA recently announced the adoption of National Instrument 23-103 Electronic Trading, intended to address the risks of electronic trading, specifically with respect to credit risk, market integrity risk, technology or systems risk and regulatory arbitrage risk. With ministerial approval secured, the new instrument will come into force in Ontario on March 1, 2013.
As we previously noted, unlike an earlier proposed version, the final version of NI 23-103 does not include requirements regarding the provision of direct electronic access. Rather, the CSA and IIROC intend to release proposed rules in the upcoming months intended to ensure that similar forms of marketplace access are treated similarly.
Posted on September 7, 2012
On August 31, the British Columbia Securities Commission proposed changes to the conditions of registration for investment dealers that maintain an office in B.C. and trade in U.S. over-the-counter markets, and who have not filed a prescribed form of undertaking. Ultimately, the proposal would expand investment dealers' current reporting requirements to include: (i) clients' jurisdictions when refusing to accept securities of specified OTC issuers; (ii) significant client holdings of shares in specified OTC issuers; and (iii) significant trading in a single specified OTC issuer facilitated by a B.C. investment dealer.
Significantly, the amended conditions would replace the current definition of OTC-quoted securities (which names two marketplaces) with the definition of OTC-quoted securities from Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets (which refers to U.S. OTC markets generally). Therefore, if adopted, firms operating in or through an office in BC, and those firms previously unaffected, will need to consider the implications of the expanded definition of U.S. OTC markets on their reporting obligations.
According to the BCSC, the proposed changes "further address the risk of abusive practices in U.S. OTC markets involving an investment dealer with a BC office." Comments on the proposals are being accepted until October 30, 2012.
Posted on August 30, 2012
CSA staff (but for Quebec) published an update today to supplement their previous notices on Principal Protected Notes (the most recent being published in August 2008). The notice provides an update on the CSA's work with IIROC and the MFDA to ensure that suitability and know-your-client obligations apply to all dealings in PPNs by registered representatives. The notice also sets out the CSA's expectations that deposit-taking institutions will use registered dealers and individuals to distribute PPNs that do not fall within a limited class.
Of interest, the notice states that IIROC and the MFDA will soon be issuing notices to their members setting out the expectation that all dealings in PPNs by registered representatives be transacted by the representatives in their capacity as an employee or agent of their member firm.
Issues with the sales of PPNs were also highlighted in IIROC's August 2010 publication of findings and recommendations emanating from its compliance review regarding the sale of PPNs.
With respect to deposit-taking institutions, the CSA state that they will continue to monitor the distribution of PPNs and may take further action should they become aware that sales practices of such institutions do not accord with expectations. As discussed by Phil Henderson when they were first introduced, PPN distribution by federally regulated financial institutions is also governed by the Principal Protected Notes Regulations. For more information, see CSA Multilateral Staff Notice 46-306.
Posted on August 29, 2012
New Brunswick, Nova Scotia and Manitoba have now issued blanket orders, substantially similar to those issued in other provinces, to exempt certain issuers from the recently enacted Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the Counter Markets.
As we've discussed previously on this blog, the Canadian Securities Administrators other than Ontario recently adopted MI 51-105 which, among other things, can subject issuers who carry out private placements in any of the adopting jurisdictions to Canadian public company obligations. The stated purpose of the instrument is to discourage the manufacture and sale of OTC quoted shell companies that can be used to facilitate abusive market practices.
In response to the concern that the instrument would have the unintended effect of subjecting major well-established issuers that trade OTC in the U.S. to Canadian public company reporting obligations, regulators have been providing blanket orders to exempt certain issuers from the application of the instrument. As we discussed on August 2, British Columbia, Alberta and Quebec issued blanket orders at the end of July, with Quebec's Autorité des marchés financiers revising its order on August 14 to clear up issues with interpretational issues.
Posted on August 27, 2012
On August 13, IIROC announced the extension of the comment period regarding its proposed set of marketplace threshold rules. As we discussed in a post of May 17, IIROC proposed two guiding principles, specifically that (i) marketplace thresholds should generally preclude the execution of orders that would otherwise require regulatory intervention by IIROC due to the trigger of a single-stock circuit breaker or the application of policies regarding the variation and cancellation of trades; and (ii) the application of marketplace thresholds should have the least amount of impact on price discovery and access to tradable liquidity.
While comments were initially due by August 8, IIROC has now extended the comment period until September 10, 2012. For more information, see IIROC Notice 12-0250.
Posted on August 24, 2012
Staff of the CSA yesterday released a notice setting out recent and upcoming changes to the Cease Trade Order Database and to provide guidance to users of the database. The database, which is publicly searchable, contains all cease trade orders issued by participating CSA members and allows for the dissemination of those orders to subscribers.
Ultimately, the guidance provides information regarding recent changes respecting the database's use of stock symbols, security identifiers and date format, while explaining the upcoming change to the classification of cease trade orders. Specifically, cease trade orders will now be classified into two distinct groups: (i) orders that ban trading in securities of a reporting issuer or a non-reporting issuer; and (ii) orders that ban trading by certain individuals and/or companies, in each case regardless of whether the order resulted from a continuous default of the issuer or an enforcement action. Where orders fall into both categories, the orders will appear in both categories and two distinct notifications will be sent out to subscribers.
For more information, see CSA Staff Notice 11-318.
Posted on August 23, 2012
On August 20, Investment Industry Regulatory Organization of Canada (IIROC) released guidance regarding the circumstances in which it may intervene to vary or cancel trades it considers "unreasonable" or not in compliance with UMIR. As we discussed in an earlier post, IIROC released proposed guidance on the subject in April, and the final version of the guidance reflects changes suggested in response to comments received in response to the original proposal.
Ultimately, guidelines are provided with regards to (i) a "no touch zone" for which there will generally be no regulatory intervention when the price difference between the erroneous trade and the current fair value of the security does not exceed the greater of 10% of the security's price or 10 trading increments; (ii) the limited conditions under which IIROC would consider intervening to cancel an erroneous trade; and (iii) the market-based conditions used to determine whether a higher threshold than the "no touch zone" will be used when an erroneous trade has been executed during significant market volatility, outside normal trading hours or in a security of limited or very limited liquidity. For more information, see IIROC Notice 12-0259.
Posted on August 20, 2012
The CSA announced last week that it is extending the comment period associated with its consultation paper concerning the regulation of proxy advisory firms. As we discussed in a June post, the CSA's consultation paper, which identified concerns raised by market participants regarding the services provided by proxy advisory firms, requested comments from stakeholders by August 20. The comment period has now been extended to September 21, 2012. For more information, see CSA Staff Notice 11-319.
Posted on July 27, 2012
Alpha Exchange yesterday published proposed public interest rule amendments intended to bring IntraSpread functionality in compliance with UMIR dark liquidity provisions that are coming into force on October 15, 2012. Specifically, the amendments would amend its IntraSpread dark pool functionality to remove dark orders that provide price improvement of 10% over the national best bid and offer, and introduce dark orders that can trade at the NBBO with SDL orders (orders with "fill or kill" duration that execute actively against dark orders) under certain circumstances.
The amendments are intended to come into effect on October 15, 2012. Comments are being accepted on the proposed amendments until August 27.
Posted on July 27, 2012
The CSA yesterday published proposed consequential amendments to a number of national instruments, policies and forms intended to implement the new regulatory regime surrounding designated rating organizations. As we discussed in an April post, the CSA recently adopted National Instrument 25-101, which sets out filing, disclosure and governance requirements applicable to such designated rating organizations.
The new requirement for a rating organization to apply for designation stems from the relevant securities legislation. On April, 30, 2012, the CSA announced the designation of DBRS Limited, Fitch, Inc., Moody’s Canada Inc. and Standard & Poor’s Rating Services (Canada) as “designated rating organizations”. The purpose of the consequential amendments is therefore to amend all references to “approved” credit organization to refer to “designated” rating organizations and to otherwise provide for consistent terminology across rules and regulations dealing with credit ratings.
Comments on the proposed amendments are being accepted until October 24, 2012.
Posted on July 20, 2012
Earlier this week, the Investment Industry Regulatory Organization of Canada released proposed guidance in which it confirms that certain trading strategies, including "layering", "quote stuffing" and "spoofing" are considered to be manipulative and deceptive trading practices under UMIR. The guidance was published in light of the evolution in recent years towards automated order systems, including algorithmic trading and high frequency trading. According to the IIROC notice, while no consensus definition exists on what constitutes "high frequency trading" or "HFT", recent industry estimates suggest HFT activity makes up between 25% and 40% of trades on Canadian marketplaces.
IIROC is accepting comments on the proposed guidance until October 15, 2012. For more information, see IIROC Notice 12-0221.
Posted on July 12, 2012
Yesterday, the British Columbia Securities Commission published its final recognition orders regarding Maple Group's acquisition of the TMX Group. Of particular interest, the recognition order respecting the TSX Venture Exchange requires that at least 25% of the directors of the TSX-V have relevant venture experience, that the TSX-V maintain regional advisory committees comprised of participants in the Canadian public venture capital market, and that the TSX-V maintain an office in Vancouver that has a role in certain functions.
The Alberta Securities Commission also issued its final orders related to the acquisition yesterday. Similar to provisions in the BCSC's order, the Alberta order contains provisions respecting director experience and the requirement that the TSX-V maintain an office in Alberta.
Posted on July 6, 2012
Earlier this week, the Investment Industry Regulatory Organization of Canada released draft guidance regarding the responsibilities of dealers and representatives that advise clients to use borrowed money to invest or who become aware that a client intends to make such leveraged investments. In releasing the guidance, IIROC cited an increasing number of cases where inappropriate leveraging strategies were recommended to clients or where risks were not sufficiently disclosed.
The guidance thus provides a checklist of issues that registered representatives should consider before making a recommendation to invest with borrowed funds. These considerations apply whether a client is engaging in leveraged strategies through margin loans advanced by the dealer (on-book borrowing), or loans from third parties (off-book borrowing).
The guidance also sets out the minimum controls that dealers should have in place, including with respect to suitability reviews of client accounts employing a leveraging strategy. Minimum controls expected of dealers also include procedures to ensure compliance with the requirements related to permitted referral arrangements.
Comments on the draft guidance are being accepted until October 4, 2012. For more information, see IIROC Notice 12-0208.
Posted on July 6, 2012
Michael Kilby -
The Ontario Securities Commission has now issued final recognition orders regarding the Maple Group's proposed acquisition of TMX Group, Alpha Group and Canadian Depository Services.
Meanwhile, the Commissioner of Competition has also issued a “no-action letter” to Maple Group in respect of its proposed acquisition of TMX Group, Alpha Group and Canadian Depository Services. The Competition Bureau’s review of the Maple / TMX transaction was extensive. Maple Group (whose investors are Alberta Investment Management Corporation, Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board, CIBC World Markets Inc., Desjardins Financial Group, Dundee Capital Markets Inc., Fonds de solidarité des travailleurs du Québec (F.T.Q.), National Bank Financial & Co. Inc., Ontario Teachers' Pension Plan, Scotia Capital Inc., TD Securities Inc. and The Manufacturers Life Insurance Company) announced on May 15, 2011, in the midst of the failed bid by the TSX to merge with the LSE, that the Group had submitted a proposal to acquire the TMX Group. Maple filed an application for an advance ruling certificate on June 7, 2011. The transaction was therefore under active Competition Bureau review for a period of some 13 months.
The Commissioner stated in a press release that “the measures contained in the OSC's final recognition orders materially change the regulatory environment sufficient to substantially mitigate the Bureau's competition concerns” thereby addressing the serious competition concerns that the Bureau had previously communicated to Maple in two areas: equities trading, and post-trade services, including clearing, settlement and depository services.
Notably, there is no consent agreement under the Competition Act in respect of the proposed transaction, with the result that beyond the standard one-year period after closing within which the Commissioner may challenge a transaction on the grounds that it substantially lessens or prevents competition, there will be no ongoing monitoring or enforcement of any competition law remedy. Such ongoing monitoring and regulation will instead fall to the OSC and other securities law regulators.
Posted on July 6, 2012
The Toronto Stock Exchange yesterday proposed providing optional "post only" order functionality for dark orders on the TSX. Currently, the post only feature is only offered for visible orders. According to the TSX, the expanded feature will "encourage all potential liquidity providers to post price improved liquidity to the benefit of retail, institutional or dealer order flow."
Posted on July 5, 2012
Earlier this week, the Investment Industry Regulatory Organization of Canada (IIROC) published Notice 12-0207 setting out its circuit breakers for the third quarter of 2012, which are set in coordination with those in 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 Q3 2012 are 1,250 points, 2,500 points and 3,750 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%) - 1,150 points; Level 2 (20%) - 2,300 points and Level 3 (30%) - 3,400 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.
Note: The thresholds in the original IIROC notice were inadvertently transposed. An updated notice is expected soon.
Posted on June 29, 2012
On June 20, the U.S. Securities and Exchange Commission announced the adoption of new rules and amendments to its proxy disclosure rules that would generally prohibit national securities exchanges from listing the equity securities of an issuer that is not in compliance with compensation committee independence requirements. Publication of the rule and amendments follow an initial proposal published in March 2011, and the final version addresses comments received by the SEC.
As we discussed in our earlier blog post, foreign private issuers that disclose in their annual report the reasons for not having an independent compensation committeee would be exempt from the relevant independence requirements. Those subject to U.S. proxy rules, however, would also be subject to certain disclosure related to compensation consultants.
Posted on June 28, 2012
The Canadian Securities Administrators today announced the adoption of National Instrument 23-103 Electronic Trading. The Instrument and its Companion Policy are intended to address the risks of electronic trading, specifically with respect to credit risk, market integrity risk, technology or systems risk and regulatory arbitrage risk.
As we discussed in a post last year, the CSA initially proposed the Instrument in April 2011, and the final version addresses the public comments received. Ultimately, the Instrument sets out requirements with respect to controls, policies and procedures that are applicable to marketplace participants, marketplaces and the use of automated order systems. Notably, however, while the 2011 proposal included requirements regarding the provision of direct electronic access, the final version of the Instrument excludes such requirements. According to the CSA notice, in considering those particular provisions, it was determined that similar forms of marketplace access, such as dealer-to-dealer routing, raise risks similar to those of direct electronic access. As such, the CSA and IIROC intend to release proposed rules in the upcoming months intended to ensure that similar forms of marketplace access are treated similarly.
Further, those jurisdictions that are a party to MI 11-102 Passport System (all jurisdictions other than Ontario) have also announced amendments to permit the use of the passport system with the Instrument. In conjunction with the CSA's amendments, the Investment Industry Regulatory Organization of Canada has also published proposed changes to its Universal Market Integrity Rules to introduce supervision and gatekeeper obligations for IIROC Dealer Members and align UMIR requirements to NI 23-103. Draft guidance relating to the new supervisory requirements under UMIR were also released.
Assuming the requisite ministerial approvals, the Instrument will come into force on March 1, 2013. For more information on IIROC's releases, see IIROC Notices 12-0200 and 12-0201.
Posted on June 28, 2012
Jeffrey Keey and Kate DaSilva -
Her Majesty’s Revenue and Customs (HMRC) recently announced that it would not appeal the February 2012 UK First-tier Tribunal decision in HSBC Holdings Plc and The Bank of New York Mellon Corporation v. The Commissioners for Her Majesty’s Revenue & Customs in which it was held that the 1.5% stamp duty reserve tax (SDRT) charge on the issue of shares of a UK company to a depositary or clearance system outside the EU was in breach of EU law.
This is a welcome announcement for UK companies seeking to raise capital as they will no longer be faced with having to bear the 1.5% duty which previously applied when they issued shares on a fundraising into depositary or clearance systems (whether within or outside the EU). Duty previously paid may also be reclaimed.
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Posted on June 21, 2012
Mihkel Voore -
The Canadian Securities Administrators today released a consultation paper considering concerns raised by market participants regarding the services provided by proxy advisory firms. The concerns identified in the paper include those with respect to: (i) potential conflicts of interest; (ii) perceived lack of transparency; (iii) potential inaccuracies and limited engagement with issuers; (iv) potential corporate governance implications; and (v) the extent of reliance by institutional investors on recommendations.
Ultimately, the objectives of the consultation are to obtain information and views regarding the concerns raised, as well as to outline potential regulatory responses. The consultation paper specifically requests feedback on a number of possible regulatory responses to the concerns identified, including requiring that proxy advisory firms: (i) separate proxy voting services from advisory or consulting services in order to address potential conflicts; (ii) disclose the analysis concerning vote recommendations, as well as internal procedures, guidelines, assumptions and sources of information supporting recommendations; and (iii) implement fair and transparent procedures for developing corporate governance standards, and ensure that these procedures and standards are publicly disclosed, in light of the potential impact on issuers of the policies recommended by proxy advisory firms.
The paper also considers existing regulatory frameworks, such as those respecting adviser registration and proxy solicitation, and finds these existing regimes inappropriate for the regulation of proxy advisory firms. As such, the paper recommends that any proposed regulatory framework include the adoption of a new, stand-alone securities regulatory instrument.
Comments on the consultation paper are being accepted until August 20, 2012. For more information, see Consultation Paper 25-401 Potential Regulation of Proxy Advisory Firms.
Posted on June 21, 2012
The CSA today published for a second time proposed amendments to NI 81-101 Mutual Fund Prospectus Disclosure regarding the delivery of Fund Facts following the purchase of a mutual fund. As we discussed last year, the CSA initially released their Stage 2 proposals in August 2011, and the current version of the amendments are intended to address stakeholder feedback.
Stage 2 of the point of sale disclosure framework is intended to allow the delivery of Fund Facts to satisfy the requirements under securities legislation to deliver a prospectus within two days of buying a mutual fund. The changes published today focus primarily on the requirements regarding the presentation of risk in the Fund Facts document.
Comments on the proposed amendments are being accepted until September 6, 2012.
Posted on June 21, 2012
Yesterday, the Canadian Securities Administrators published Consultation Paper 91-406 describing the CSA Derivatives Committee's proposals relating to central counterparty clearing of over-the-counter derivatives. The consultation paper is the latest in a series of eight papers intended to build on the high-level proposals found in Consultation Paper 91-401 released in November 2010.
Ultimately, the paper proposes that regulators make CCP clearing of eligible OTC derivatives mandatory. Under the Committee's recommendations, CSA members would also develop rules and procedures to determine the eligibility of OTC derivatives contracts for central clearing and procedures for the recognition of CCPs and the approval of CCP rules and policies in regards to the clearing of OTC derivatives contracts.
Comments on the consultation paper are being accepted until September 21, 2012.
Posted on June 18, 2012
Margaret Grottenthaler -
On June 6, the International Organization of Securities Commissions (IOSCO) published its Final Report on International Standards for Derivatives Market Intermediary Regulations. The report, which focuses on OTC derivative market intermediaries (DMIs) that deal with non-retail clients and counterparties, makes various recommendations with respect to: (i) the obligations of DMIs; (ii) requirements to manage counterparty risk; and (iii) protecting participants in the OTC derivatives market from unfair, improper or fraudulent practices.
The report sets out its recommendations in very general terms that are not likely to provide much in the way of specific guidance for local regulators. It recommends for example the establishment of minimum standards for the registration or licensing of DMIs. Relevant material information on licensed or registered DMIs should be publically available. According to the recommendations, market authorities should also consider imposing some form of capital or other financial resources requirements for DMIs that are not prudentially regulated.
The report also recommends that DMIs be subject to business conduct standards tailored to the OTC derivatives market. DMIs would also be required to have effective corporate governance frameworks in place, supervisory policies and procedures to manage their OTC derivatives operations, and risk management systems to manage OTC derivatives related business risks.
Ultimately, the report is intended to further G-20 Leaders' objective of reforming the OTC derivatives market to improve transparency, mitigate systemic risk and protect against market abuse. Of more interest to Canadian market participants will be the CSA consultation paper on market intermediary regulations to be published later this summer.
Posted on June 14, 2012
Staff of the Toronto Stock Exchange released a notice last week providing guidance on the TSX Company Manual's provisions regarding the use of block purchase exemptions under normal course issuer bids. Specifically, TSX staff addressed the practice of dealers bundling pre-existing blocks to sell into one purchase order under an NCIB. In the view of TSX staff, such bundling is considered inconsistent with the block purchase exemption since it allows issuers to exceed the one block per week limitation.
The guidance notice also addressed the issue of securities purchased in error under an NCIB. According to TSX staff, such securities purchased in error under an NCIB that are taken into inventory by the buying broker firm may not be resold into an NCIB since such trades would be considered pre-arranged.
Posted on June 7, 2012
Ramandeep Grewal -
The Canadian Securities Administrators today published an update on the status of their review of the “$150,000 minimum amount” and “accredited investor” exemptions. As we discussed in a blog post last year, CSA staff published a consultation paper in November, 2011 on the subject and requested feedback from market participants.
Today's update provides a short overview of some of the comments received in response to the consultation paper, including with respect to the impact that any changes to the exemptions would have on capital raising and investment opportunities. As expected, the CSA received mixed feedback. With respect to the accredited investor exemption, some respondents urged the CSA to keep the status quo, while others suggested a broader exemption to provide better access to capital for business and investment opportunities for the exempt market. Some of the suggestions included lowering the prescribed income and asset thresholds or adding new categories based on an investor’s education, work experience or investment experience.
Respondents also gave mixed feedback on the $150,000 minimum investment amount exemption, ranging from criticism of it being a flawed basis on which to measure investor sophistication to support on the basis of its simplicity and usefulness when no other exemption is available. As we discussed back in January of this year, the SEC undertook a similar review of exemptions available under the Securities Act of 1933, adopting an amended “accredited investor” net worth standard.
Moving forward, the CSA also intend to analyze information from exempt distribution reports before making any further recommendations and expect to publish their conclusions later this year. Of particular note, the notice suggests that some CSA jurisdictions are also considering expanding their review to include other capital raising exemptions, including the “offering memorandum” exemption, which we note is not universally available throughout Canada. The OSC also announced today that it is broadening the scope of its exempt market review to consider the introduction of new prospectus exemptions, and intends to publish a second consultation notice seeking additional public feedback.
While it is unclear whether any specific exemptions will be formally considered, as we noted in a post last month, a "crowdsourcing" exemption in the U.S. has recently garnered much publicity. Whether any additional exemptions are ultimately adopted, however, remains to be seen.
Posted on May 23, 2012
On April 5, U.S. President Obama signed the Jumpstart Our Business Startups (JOBS) Act, a law intended to help small businesses and startups raise capital. As we discussed in a post earlier this year, the legislation provides a "crowdfunding" registration exemption for transactions involving individual investments not exceeding certain thresholds based on an investor's income and net worth.
The amount raised under the crowdfunding exemption must also be limited to an aggregate annual amount of $1 million. The issuer or intermediary will also have to comply with certain requirements in order to utilize the exemption, including with respect to providing investor warnings, and resales of any securities purchased would be limited for one year.
Of particular interest to Canadian companies are the Act's provisions respecting emerging growth companies (those with annual gross revenues of less than $1 billion), which also apply to foreign private issuers. Among other things, EGCs will now be permitted to communicate, orally or in writing, with qualified institutional investors and institutional accredited investors to gauge interest in a potential offering prior to the filing of a registration statement.
The Act will also affect the disclosure obligations of EGCs by, among other things, permitting an EGC to provide only two years of audited financial statements in an IPO registration statement instead of three years and reducing public company reporting requirements post-IPO. For example, the JOBS Act amends the Sarbanes-Oxley Act of 2002 to exempt EGCs from the requirement that an auditor attest to and report on management's assessment of internal controls over financial reporting.
Posted on May 17, 2012
The Investment Industry Regulatory Organization of Canada (IIROC) recently proposed a set of principles intended to guide it as it considers formal proposals to establish marketplace price and volume thresholds. Specifically, two guiding principles are proposed, namely (i) that marketplace thresholds should generally preclude the execution of orders that would otherwise require regulatory intervention by IIROC due to the trigger of a single-stock circuit breaker or the application of policies regarding the variation and cancellation of trades; and (ii) that the application of marketplace thresholds should have the least amount of impact on price discovery and access to tradable liquidity.
The release considers existing mechanisms to control volatility and notes that IIROC has issued guidance or request for comments with respect to single-stock circuit breakers, regulatory intervention for the cancellation or variation of trades and market-wide circuit breakers. IIROC notes, however, that these mechanisms are based on price impact and are not directly affected by the volume of an order. Ultimately, IIROC requests comments on all aspects of controlling price volatility in the Canadian marketplace and specifically on a number of questions, including: (i) whether marketplaces should be required to adopt a form of marketplace thresholds; (ii) whether the proposed guiding principles are appropriate and whether there are additional ones that should be considered; and (iii) whether marketplace thresholds should be more flexible during periods of natural volatility. Comments are being accepted until August 8, 2012.
Posted on May 15, 2012
The Mutual Fund Dealers Association of Canada (MFDA) has released a new strategic plan for the period through 2014. Specifically, the MFDA identifies four key strategic goals for itself in the plan, namely: (i) enhancing collaboration with the industry; (ii) promoting investor confidence and ensuring the MFDA continues to be an active participant in the Canadian securities regulatory landscape; (iii) continuing to pursue staff excellence; and (iv) ensuring that the MFDA continues to pursue opportunities for process efficiencies so that it operates in a responsible and effective manner. For more information, see MFDA Bulletin #0525-M.
Posted on May 10, 2012
The OSC today published a proposal to amend functionality of CDS' Continuous Net Settlement Service buy-in process. Specifically, the changes would (i) allow the receiver (buyer) to select the specific deliverers (sellers) they wish to grant or deny extensions to; (ii) enhance the Deliverer Buy-in List screen to increase clarity of the status of buy-in extensions; and (iii) introduce a new option that will allow the receiver to instruct the system to automatically create repeat buy-ins.
According to CDS, the proposed amendments will provide processing efficiencies and management flexibility in the buy-in process. Comments on the proposals will be accepted for 30 days from today's publication.
Posted on May 10, 2012
On May 3, the Ontario Securities Commission published a notice summarizing the public comments received to date on Maple Group's proposed acquisition of TMX Group and identifying changes to the application since its original publication in October 2011. The notice also contains a proposed order recognizing Maple Group, TMX Group and TSX as exchanges. According to the OSC, the proposed order, which also approves the beneficial ownership by Maple of more than 10% of each of TMX Group and TSX, was released following an extensive review of Maple Group's acquisition proposal.
The recognition order also sets out various terms and conditions applicable to Maple, TMX Group and TSX, including with respect to governance, fee models and financial reporting. Further, a separate order was published to recognize the Canadian Depository for Securities Limited and CDS Clearing and Depository Services as clearing agencies, subject to various terms and conditions.
The OSC is accepting comments on the proposed orders, including their terms and conditions, until June 4, 2012.
Posted on May 10, 2012
Margaret Grottenthaler -
As we discussed last month, the Canadian Securities Administrators Derivatives Committee recently released the latest in a series of eight papers intended to build on the high-level proposals found in Consultation Paper 91-401 regarding the regulation of OTC derivatives. Specifically, Consultation Paper 91-405 considers the scope and characteristics of a proposed end-user exemption to address market participants that generally only trade to hedge commercial risks. According to the paper, this limited segment of end-users, not systemically important to the market, should be exempted from most of the proposed regulations concerning OTC derivatives. The CSA are accepting comments on the consultation paper until June 15, 2012.
Meeting Requirements
The Consultation Paper considers various criteria for determining who should qualify for the end user exemption. According to the CSA's proposal, an end user would include participants that: (i) trade for their own account; (ii) are not financial institutions; and (iii) hedge to mitigate commercial risks related to the operation of their business or a related affiliated entity or series of legal entities within that affiliated group. End users that otherwise meet the criteria for the exemption may still be found ineligible for the exemption, however, if they are deemed to be "Large Derivatives Participants" considered key participants in the market or whose default would represent a systemic risk to the market. An upcoming consultation paper on registration is expected to consider the thresholds for Large Derivatives Participants. The Committee also specifically rejected including certain criteria in determining whether a participant qualifies as an end-user, including those based on: (i) trade volume or notional dollar values of trades; (ii) sector specific exceptions; and (iii) standardized contracts and clearing.
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Posted on May 10, 2012
IIROC this week announced a change in the implementation dates for UMIR amendments respecting short sales and failed trades, previously scheduled to occur on September 1, 2012, to October 15, 2012. Meanwhile, the implementation of amendments respecting dark liquidity, previously scheduled to occur on October 10, 2012, has now also been changed to October 15, 2012. According to IIROC, the dates have been consolidated to facilitate the technical changes that market participants, marketplaces and service providers need to make and to provide for one testing window for the changes. For more information, see IIROC Notice 12-0158.
Posted on May 8, 2012
On May 4, the Ontario Securities Commission released a statement regarding a meeting held in Toronto earlier this month and attended by various international regulatory agencies regarding the regulation of OTC derivatives. Various issues surrounding implementation were discussed, including transparency, margin for uncleared derivatives, coordination of clearing mandates, access to data in trade repositories, and cross border clearing house crisis management. Ultimately, the meeting's purpose was to provide a forum for discussion among the regulators as they work toward international harmonization of the regulatory requirements.
In addition to the OSC and Quebec's Autorité des marchés financiers, the meeting included representatives from the Australian Securities and Investments Commission, Brazil's Comissão de Valores Mobiliários, the European Commission and European Securities and Markets Authority, Hong Kong's Securities and Futures Commission, Japan's Financial Services Agency, the Monetary Authority of Singapore, the Swiss Financial Market Supervisory Authority, and the U.S. Commodity Futures Trading Commission and Securities and Exchange Commission.
Posted on May 7, 2012
Keith Chatwin and Doug Richardson -
For as long as corporations have been paying dividends and trusts have been paying distributions, issuers have been seeking ways to encourage their securityholders to reinvest those cash payments into the issuer. These programs have typically taken the form of dividend or distribution reinvestment plans (DRIPs), which in their various incarnations have enabled securityholders to direct that cash dividends or distributions be used to acquire additional securities of the issuer from treasury or the open market; at the prevailing market price or at a discount, some with an ability to contribute further cash to acquire even more securities and, more recently, with an ability to direct those securities to a plan broker for subsequent sale in exchange for a premium cash payment pursuant to so-called “premium” DRIPs. DRIPs have largely been a win-win scenario, enabling securityholders to maximize their investment in an issuer in a convenient and economical way without incurring service charges or brokerage fees while at the same time representing a significant source of capital for issuers without the need to undertake a prospectus qualified offering or private placement with the associated expense and potential liability.
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Posted on May 3, 2012
On April 30, the Canadian Securities Administrators announced the designation of DBRS Limited, Fitch, Inc., Moody's Canada Inc., and Standard & Poor's Rating Services (Canada) as designated rating organizations under National Instrument 25-101 Designated Rating Organizations. As we discussed last month, the CSA recently adopted NI 25-101, which sets out a regulatory framework for the oversight of credit rating organizations.
According to the CSA, the four rating agencies granted DRO status are in compliance in all material respects with relevant U.S. federal securities laws applicable to nationally recognized statistical rating organizations, which are equivalent to the obligations under NI 25-101. Under the designation orders, each DRO will have a six month transition period to fully implement all NI 25-101 requirements.
Posted on April 27, 2012
The Investment Industry Regulatory Organization of Canada (IIROC) recently published proposed amendments to the Universal Market Integrity Rules (UMIR) regarding the execution and reporting of certain off-marketplace trades. While the UMIR generally require orders to be entered and executed on a marketplace, they also contain a number of exceptions from this requirement and give IIROC the authority to grant exemptions form this requirement on application. The proposed amendments would provide an automatic exception for four of the most commonly sought exemptions, namely, to complete an “off-marketplace” trade in connection with:
- an exempt distribution from control pursuant to section 2.8 of National Instrument 45-102 – Resale of Securities;
- an exempt take-over bid;
- a purchase from a shareholder in a control position under a normal course issuer bid; and
- the sale of securities which are subject to resale restrictions.
A blanket exemption would also be provided for an off-marketplace trade if the Participant was involved as principal or agent and applicable legislation required the trade to be completed in a private or "non-public" transaction. Such trades would have to be reported to IIROC.
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Posted on April 27, 2012
Staff of the Canadian Securities Administrators published a staff notice yesterday to highlight issues identified in reports of exempt distributions (private placements) filed under Form 45-106F1, and providing guidance relevant to the preparation of the form.
Issues identified by CSA Staff include: filing of the BC Form 45-106F6 outside of BC, failing to file on time or pay the required filing fee, failing to include a complete list of purchasers and to reconcile information in the form with what is reported in the schedule to the form, failing to disclose compensation that should be considered a "commission" or "finder's fee" and failing to certify the form. As we discussed in December, British Columbia recently adopted its own form of exempt trade report under Form 45-106F6, which requires more information than what is required in the F1 in certain circumstances.
Meanwhile, members of the CSA except Ontario also released a staff notice yesterday identifying deficiencies in offering memoranda prepared in accordance with Form 45-106F2 when relying on the "offering memorandum" exemption under section 2.9 of NI 45-106. Common deficiencies included failing to include sufficient information to allow a prospective purchaser to make an informed investment decision, inadequately disclosing available funds and use of available funds and omitting to include, among other things, key terms of material agreements. The notice also provides guidance for those intending to rely on the OM exemption of NI 45-106.
For more information, see CSA Staff Notice 45-308 and Multilateral CSA Staff Notice 45-309.
Posted on April 26, 2012
Jeffrey Keey -
The recent First Tier Tribunal decision in HSBC Holdings Plc and The Bank of New York Mellon Corporation v The Commissioners for Her Majesty’s Revenue & Customs brings positive news for UK companies aiming to undertake a fundraise or listing outside the EU involving the use of overseas depositary or clearance systems.
Subject to an appeal by Her Majesty’s Revenue & Customs (HMRC), the current 1.5% stamp duty reserve tax (SDRT) charge on fundraisings by UK companies involving the use of non-EU depositary or clearance systems will no longer apply making non-EU fundraising and listings more attractive and increasing the fungibility of the shares of UK companies with non-EU dual listings, including those listed in London and Toronto.
Pending any HMRC appeal, companies may choose not to pay the applicable duty although they could be faced with a claim for its payment (together with penalties and interest) if HMRC are successful on any appeal ultimately brought.
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Posted on April 20, 2012
The CSA and IIROC last week announced that changes to the Universal Market Integrity Rules to address dark liquidity on Canadian equity marketplaces will be effective October 10, 2012. The amendments take into account comments received by the regulators in response to proposed amendments published in July 2011.
Ultimately, the amendments provide that (i) visible orders will have execution priority over dark orders on the same marketplace at the same price; (ii) in order to trade with a dark order, smaller orders must receive a minimum level of price improvement; and (iii) IIROC will have the ability to designate a minimum size for dark orders.
Publication of the notice represents the culmination of a process that began with the release of Joint CSA/IIROC Consultation Paper 23-404 in 2009. That paper considered a number of issues surrounding dark pools and orders, and was followed by a consultation forum and a position paper on dark liquidity published in November 2010. IIROC published proposed amendments to UMIR to address the regulation of dark liquidity in July 2011.
As we've previously discussed, the CSA adopted amendments to NI 21-101 and NI 23-101 last month. In doing so, the CSA noted the importance of establishing a framework that permitted the CSA and IIROC to introduce a size threshold for exemption from the transparency requirements in NI 21-101. While IIROC will now have the authority to designate a minimum size for dark orders, no such threshold has yet been set.
For more information on the recent UMIR changes, see IIROC Notice 12-0130.
Posted on April 17, 2012
The Canadian Securities Administrators (CSA) last week released Consultation Paper 91-405 Derivatives: End-User Exemption, the latest in a series of eight papers intended to build on the high-level proposals found in Consultation Paper 91-401 released in November 2010.
As is suggested by its title, the paper considers an end-user exemption to OTC derivatives regulation. Ultimately, an end-user exemption is intended to avoid discouraging the use of OTC derivatives by market participants that are not in the business of derivatives trading but that trade in OTC derivatives to mitigate commercial risks related to their business. As such, according to the CSA, an end-user exemption must address this specific segment of the market without undermining the broad objective of increased regulation of OTC derivatives contracts.
Thus the paper, among other things, sets out the CSA Derivatives Committee's position on the application of an end-user exemption, the criteria for determining eligibility, and what an eligible end-user would need to do in order to rely on the exemption.
The consultation paper, which includes specific questions for the consideration of commentators, is open for public comment until June 15.
Posted on April 13, 2012
Earlier this month, Omega ATS announced the proposed introduction of "iceberg" orders to its trading platform. The new functionality would allow subscribers to enter the full quantity of a limit order, but only expose a fraction of the full order to the market book. Iceberg orders would refresh the fractional quantity selected to be made public until the full quantity of the order was completed. According to Omega, iceberg orders have become standard trading tools over the last decade. Comments on the proposed changes are being accepted until May 7.
Posted on April 13, 2012
Earlier this month, IIROC released a webcast intended to provide information regarding issues related to "accredited investors". Specifically, the webcast discusses adviser obligations and provides information regarding the risks of buying securities without a prospectus.
Posted on April 2, 2012
The Investment Industry Regulatory Organization of Canada (IIROC) today published Notice 12-0122 relating to securities trading halts in coordination with the application of "circuit breakers" on U.S. markets for the second quarter of 2012. 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 Q2 2012 are 1,300 points, 2,600 points and 3,900 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%) - 1,250 points; Level 2 (20%) - 2,500 points and Level 3 (30%) - 3,750 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.
Posted on March 29, 2012
Kate DaSilva and Stanley McKeen -
In January of this year the U.K. securities regulator, the Financial Services Authority (the FSA), issued Consultation Paper CP12/2 proposing amendments to rules applied by it as the UK Listing Authority to companies listed or seeking listings on the UK’s regulated stock market (the Listing Rules). As we discussed briefly earlier this week, the paper proposes a series of changes, primarily to the Listing Rules, but also to rules which apply to prospectuses being issued in the UK (the Prospectus Rules) and to the on-going share capital, financial and other disclosures required in respect of companies listed in the UK (the Disclosure and Transparency Rules). Key proposed amendments apply to transactions, reverse takeovers (RTOs), externally managed companies (also known as special purpose acquisition companies or "SPACs"), the sponsor regime and the ability to buyback more than 15% of a company’s own shares.
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Posted on March 27, 2012
Yesterday, the Investment Industry Regulatory Organization of Canada (IIROC) announced the approval of amendments to Dealer Member Rules to adopt core elements of its Client Relationship Model (CRM) Project for investment dealers. Specifically, the amendments provide for(i) improved relationship disclosure, including requiring that investors receive more information on account types and transaction and account fees; (ii) enhanced standards regarding conflicts of interest management and disclosure; (iii) increased suitability assessment standards to ensure that investments are appropriate to investors' objectives and time horizon; and (iv) account performance reporting.
While most of the amendments will come into force over the next two years, the account performance reporting requirements have been deferred until the CSA performance reporting requirement have been finalized. The amendments were last published for comment in January 2011. The approved amendments reflect revisions made to address comments received.
Meanwhile, IIROC also published guidance to assist dealers on compliance with the new requirements, as well as guidance relating to "know your client" and suitability obligations. For more information, see IIROC Notices 12-0107, 12-0108 and 12-0109.
Posted on March 23, 2012
Jay C. Kellerman, Simon A. Romano & Brian G. Hansen -
On March 20, the Ontario Securities Commission published a staff notice outlining the results of its regulatory review of emerging market issuers. The review was prompted by recent concerns involving some emerging market issuers, given the growing importance of these issuers to global and Canadian capital markets. As we discussed earlier this week, OSC Staff Notice 51-719 Emerging Market Issuers Review (the Staff Notice) identifies the following four principal areas of concern: (i) issuer governance and disclosure; (ii) the adequacy of the external audit function; (iii) due diligence conducted by underwriters; and (iv) the exchange listing and approval process.
The review encompassed issuers listed on the TSX, TSXV or the CNSX whose principal active operations were outside of Canada and in regions such as Asia, Africa, South America and Eastern Europe. This resulted in a pool of 108 issuers with a total market capitalization of $40 billion (in contrast to over 4,000 exchange-listed reporting issuers in Canada with a market capitalization of $2.39 trillion).
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Posted on March 23, 2012
Ramandeep Grewal -
The Canadian Securities Administrators today announced the adoption of amendments to NI 21-101 Marketplace Operations, NI 23-101 Trading Rules, their companion policies and related forms to update and streamline the instruments' regulatory and reporting requirements. As we discussed last year, the CSA initially proposed amendments to the instruments in March 2011.
While minor changes have been made to the original proposals in response to comments received, the changes are not considered material by the CSA. Most of the amendments are expected to come into force on July 1, 2012.
Among other things, the amendments relate to increased transparency of marketplace operations and will update and streamline regulatory and reporting requirements, including requirements relating to conflicts of interest and outsourcing arrangements, and provide guidance on issues such as when a dealer that uses an automated system to match order flow would be considered a marketplace, the types of “services” encompassed under the fair access requirement and when indications of interest would be considered to be firm orders.
The amendments also implement further restrictions on the pre-trade transparency exemption contained in NI 21-101 to include a requirement that orders meet a specified size threshold in order to be exempt. NI 21-101 generally requires that any marketplace that displays orders of exchange-traded securities must provide information regarding the order to an information processor. However, there is an exemption that permits “dark pools” or “dark orders” to operate and for orders to be entered with no pre-trade transparency. The actual threshold is not included in the amendments but is the subject of a joint CSA/IIROC initiative under Staff Notice 23-311 as we discussed last August. The Companion Policy to NI 21-101 has also been amended to clarify when pre-trade transparency requirements, or exemptions, may apply to “indications of interest” or “IOIs”.
In jurisdictions that are a party to MI 11-102 Passport System (all but Ontario), amendments were also published to permit certain exemptive relief applications. Ontario, meanwhile, has announced the repeal of OSC Rule 21-501 Information Transparency Requirements for Government Debt Securities in National Instrument 21-101 - Marketplace Operation to correspond with the amendments taking effect.
Posted on March 23, 2012
The Investment Industry Regulatory Organization of Canada (IIROC) announced on March 21 that Alpha Exchange Inc. will begin trading as of Monday, April 2, 2012. Therefore, the last day of trading on Alpha ATS will thus be on Friday, March 30. As we discussed in December 2011, the OSC approved Alpha Group's application to become a recognized exchange late last year. Upon the commencement of trading on Alpha Exchange, all open orders with an expiry date beyond the last trading date on Alpha ATS will automatically be migrated to the new exchange. For more information, see IIROC Notice 12-0103.
Posted on March 23, 2012
Earlier this week, IIROC announced that it has reached an agreement with the TMX Group to employ its Surveillance Technology Enhancement Platform (STEP) to provide single-market monitoring services to the TSX and TSX-V. The platform, launched in 2010, provides IIROC with a comprehensive multi-market surveillance system. IIROC's agreement with the TMX Group is effective April 1, 2012.
Posted on March 19, 2012
Last week, the International Organization of Securities Commissions (IOSCO) released a consultation report intended to provide industry and regulators with guidelines against which the quality of regulation and industry practices concerning exchange traded funds could be assessed. Specifically, the report outlines a number of proposed principles related to the structuring of ETFs, classification and disclosure, and marketing and sale of shares. IOSCO is accepting comments on its consultation paper until June 27, 2012. For more information, see Principles for the Regulation of Exchange Traded Funds.
Posted on March 16, 2012
The Ontario Securities Commission, Quebec's Autorité des marchés financiers and the British Columbia Securities Commission today announced that they have entered into a Memorandum of Understanding with the European Security Market Authority with respect to the supervision and oversight of credit rating agencies. The MOU outlines terms and conditions, as well as a framework for consultation, cooperation and information-sharing between the organizations. Assuming Ministerial approval, the MOU will come into effect on April 20, 2012.
Posted on March 8, 2012
The U.S. House of Representatives recently passed a "crowdfunding" bill that would allow companies to sell securities to individual investors via non-traditional means such as social networking websites. Specifically, the proposed amendments to the Securities Act of 1933 would provide a registration exemption for transactions involving individual investments limited to the lesser of $10,000 and 10% of an investor's income. The amount raised under the exemption would also be limited to an aggregate annual amount of $1 million, or $2 million if the issuer provided potential investors with audited financial statements. The issuer or intermediary would have to comply with certain requirements in order to utilize the exemption, including with respect to providing investor warnings, and resales of any securities purchased would be limited for one year.
While President Obama has communicated his support for the bill, it has yet to pass the Senate. Whether the bill ultimately survives the legislative process remains to be seen, but advocates are clearly excited at the potential of allowing small businesses to use websites like Kickstarter or social networking sites like Facebook to offer stock to small-stake investors.
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Posted on March 7, 2012
As we discussed in a post earlier this year, the U.S. SEC recently adopted an amended "accredited investor" net worth standard that excludes the value of an individual's primary residence. The SEC has now published a small entity compliance guide that summarizes the new standard and provides examples of net worth calculations.
Posted on March 5, 2012
On March 2, the Mutual Fund Dealers Association of Canada (MFDA) announced the adoption of amendments to MFDA Rule 5.3 (Client Reporting), which are now in effect. The amendments, intended to ensure that the frequency of account statement delivery requirements under MFDA rules are consistent with those established under NI 31-103, require mutual fund dealers to deliver a statement to all clients at least once every three months. The amendments were initially proposed in October 2011. For more information, see MFDA Bulletin #0521-P.
Posted on March 5, 2012
In light of its announcement last week that UMIR amendments will soon result in the repeal of pricing restrictions on short sales, IIROC has also issued proposed guidance on short sale and short-marking exempt order designations. Specifically, the proposed guidance is intended to assist in the correct use of the designations. An earlier version of the guidance was initially released last year.
IIROC expects to issue a final version of the guidance in advance of the date on which the amendments to UMIR are scheduled to take effect. IIROC is accepting comments on the proposed guidance until May 2. For more information, see IIROC Notice 12-0079.
Posted on March 5, 2012
Last week, the Investment Industry Regulatory Organization of Canada released a study that considered whether short selling activity on Canadian markets of inter-listed securities is affected by the triggering of short sale circuit breakers in the U.S. Specifically, the study sought to determine whether cases of U.S. circuit breakers being triggered during the study period in early 2011 resulted in any systemic redirection of short selling activity to Canadian markets.
Ultimately, the study found that such circuit breaker events in the U.S. had minimal effects on short selling activity on Canadian markets. According to IIROC, the results of the study and other studies on the subject demonstrate that Canada has not had the problems with short sales and failed trades experienced in other jurisdictions.
Posted on March 2, 2012
The CSA today published a staff notice outlining its approach to situations where it has concerns with the financial condition of an issuer and/or the sufficiency of proceeds from the offering during a prospectus review. According to the CSA, there are limited circumstances where such concerns may lead to a refusal to issue a prospectus receipt.
The notice specifically identifies five areas of concern, namely with respect to: (i) missing information regarding offering amount and pricing; (ii) offering structure; (iii) use of proceeds disclosure; (iv) risk factor disclosure; and (v) representations to support ability to continue operations. Of particular interest, guidance is also provided to assist issuers in addressing each concern.
According to the notice, the list is not exhaustive and the CSA state that they will continue to assess and review each prospectus on its own merits. For more information, see Staff Notice 41-307.
Posted on March 2, 2012
The Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada released a joint notice today requesting feedback from investors and market participants regarding disclosure and transparency measures related to short sales and failed trades. The notice was published in conjunction with the announcement that IIROC will adopt amendments to UMIR as of September 1, 2012 to repeal pricing restrictions on short sales, first proposed last year.
Ultimately, the notice seeks feedback on various approaches to enhance disclosure of short sales and failed trades as part of an ongoing project between IIROC and the CSA to monitor international developments and regulatory approaches. The notice outlines these developments and poses specific questions to stakeholders regarding potential regulatory changes.
Comments are being accepted until May 31. For more information, see CSA/IIROC Joint Notice 23-312 and IIROC Notice 12-0078.
Posted on February 29, 2012
The Ontario Securities Commission today released its strategic plan for 2012-2015. Entitled The OSC: A 21st Century Securities Regulator, the plan is intended to guide the Commission as it seeks "to remain an effective, efficient, vigilant and modern organization."
Specifically, the plan sets out six key strategies that the OSC will pursue over the next few years, namely: (i) expanding the OSC's research and analytic capability to be able to respond to and keep pace with market developments and investor concerns and to support policy-making by creating a dedicated Research and Analysis Group; (ii) engaging investors more effectively by creating an Office of the Investor; (iii) establishing an internal Policy Coordination Committee to improve policy coordination and priority-setting; (iv) aligning all operations and programs with defined OSC goals and priorities and developing and reporting on key performance indicators; (v) establishing an Emerging Risk Committee to develop and implement a risk framework; and (vi) delivering excellence in the execution of operations by enhancing practices and processes.
The plan's release follows a review undertaken in 2011 of the OSC's priorities, objectives and outcomes, which included consulting with external stakeholders and engaging a consulting firm to benchmark the OSC against best practices at other regulatory agencies such as the U.S. SEC. Moving forward, the OSC intends to set out which initiatives will be address in the next fiscal year in its 2012-13 Statement of Priorities. The OSC also states that it will report on the progress of its plan on an annual basis.
Posted on February 27, 2012
Ramandeep Grewal, Jay Kellerman, Raymond McDougall and Mihkel Voore -
This is the fourth in a series of posts in which we take a closer look at proposed amendments to NI 41-101, released by the Canadian Securities Administrators in November 2011. The proposed amendments are intended to expand the scope of marketing activities that can be conducted in connection with prospectus offerings. Our first post, published earlier this month, considered the new "testing the waters" exemption for IPOs. Our second looked at the use of term sheets during and after the waiting period. Last Thursday, we considered the proposed amendments' new exemption allowing for “road shows” to be conducted in connection with a prospectus offering. In this post, meanwhile, we consider the pre-marketing of bought deals and other amendments.
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Posted on February 24, 2012
Alan D’Silva, Lesley Mercer and Ingrid Minott -
In Sharma v. Timminco Limited, a decision released on February 16, the Court of Appeal for Ontario determined that section 28 of the Class Proceedings Act, 1992 (CPA), which allows for the suspension of a limitation period applicable to a cause of action asserted in a class proceeding, is not triggered until after leave is granted under Part XXIII.1 of the Securities Act to commence a statutory cause of action for misrepresentation.1
Background
The plaintiff commenced a putative class action for damages in excess of $500 million on behalf of a class of persons who acquired Timminco securities between March 17, 2008 and November 11, 2008. The Statement of Claim asserts claims for negligence and negligent misrepresentation and simply “mentions” that the plaintiff intends to deliver a notice of motion seeking an Order permitting the plaintiff to “assert” secondary market claims pursuant to section 138.3 of Part XXIII.1 of the Ontario Securities Act. Pursuant to section 138.8 of the Securities Act, “no action may be commenced under section 138.3 without leave of the court”. Section 138.14 of the Securities Act provides that an action under section 138.3 must be commenced within 3 years of the misrepresentation.
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Posted on February 24, 2012
Earlier this week, the Canadian Securities Administrators released their 2011 Enforcement Report, which sets out the results of regulators' enforcement activities over the last year. According to the report, CSA members commenced a total of 126 proceedings in 2011, down from 178 the year before, and concluded a total of 124 cases, down from 174. Of particular interest is the breakdown of concluded cases by category. Specifically, the majority of cases concluded last year (66) involved illegal distributions, while cases of registrant misconduct and insider trading were second and third, respectively. Meanwhile, total fines and administrative penalties ordered amounted to over $52 million, while restitution, compensation and disgorgement amounted to over $49 million.
Posted on February 23, 2012
On February 21, the European Union adopted a regulation on short selling and certain aspects of credit default swaps. The regulations are intended to introduce common EU transparency requirements and harmonize the powers that regulators can use in exceptional situations where there is a serious threat to financial stability. As we discussed in an October 2010 post, the regulation was initially proposed by the European Commission in a few years ago.
Posted on February 23, 2012
Ramandeep Grewal, Jay Kellerman, Raymond McDougall and Mihkel Voore -
This is our third in a series of posts on the proposed amendments to NI 41-101 to expand the scope of marketing activities that can be conducted in connection with prospectus offerings. Our first considered the new "testing the waters" exemption for IPOs, while our second looked at the use of term sheets during and after the waiting period. In this post, we consider the proposed amendments' new exemption expressly allowing for “road shows” to be conducted in connection with a prospectus offering.
A “road show” is proposed to be defined as a presentation to potential investors regarding a distribution of securities under a prospectus that is conducted by an investment dealer on behalf of an issuer in which one or more executive officers of the issuer participate. These rules apply in respect of road shows conducting during or after the waiting period, with applicable modifications in the case of base shelf prospectus offerings.
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Posted on February 21, 2012
Earlier this month, the Ontario Securities Commission, Quebec's Autorité des marchés financiers, the Alberta Securities Commission and the British Columbia Securities Commission announced the signing of a memorandum of understanding with the Australia Securities and Investments Commission. The MOU is intended to facilitate the supervision of regulated entities operating in both Canada and Australia by providing a mechanism for consultation, cooperation and exchange of information among the regulators.
Posted on February 16, 2012
Ramandeep Grewal, Jay Kellerman, Raymond McDougall and Mihkel Voore -
As we discussed in a post last year, the Canadian Securities Administrators (CSA) proposed amendments on November 25, 2011 intended to expand the scope of marketing activities that can be conducted in connection with prospectus offerings.
With respect to pre-marketing in connection with a prospectus offering, the proposals include a new exemption from the prospectus requirement to permit the solicitation of expressions of interest where the issuer has a reasonable expectation of filing a preliminary long form prospectus in respect of an initial public offering (IPO). Pursuant to this exemption, an investment dealer that is authorized in writing to do so by the issuer would be permitted to make solicitations to “permitted institutional investors” (defined below).
When relying on this exemption, both the issuer and the investment dealer must keep information about the proposed offering confidential, written materials provided to potential investors must be marked confidential and contain a legend to the effect that the material is not subject to liability under securities legislation and, prior to providing any information about the proposed offering, the investment dealer must obtain a written confidentiality confirmation from the investor. Guidance in the proposed Companion Policy to NI 41-101 advises that this confirmation may be obtained through email.
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Posted on February 10, 2012
The Canadian Securities Administrators released a consultation paper today intended to build on earlier proposals to construct a framework for the treatment of market participant collateral in centrally cleared OTC derivatives transactions. Specifically, the paper addresses the segregation of assets put forward as collateral for OTC derivatives transactions cleared through a central counterparty by customers that access the CCP indirectly through clearing members. The paper also addresses the transfer of customer collateral and customer positions upon the default or insolvency of the clearing member of a CCP.
According to the CSA, the paper's recommendations are intended to ensure that "CCPs clearing OTC derivatives possess adequate rules and infrastructure to facilitate the segregation and portability of collateral in a manner that provides market participants with appropriate protections". To that end, the paper recommends, among other things: (i) that clearing members be required to segregate customer collateral from their own proprietary assets and that the Complete Legal Segregation Model (whereby all customers' collateral is permitted to be held on an omnibus basis, but is recorded and attributed by both the CCP and clearing member to each customer based on their collateral advanced) be employed; (ii) that if CCPs or clearing members are permitted to reinvest posted customer collateral, investments should be restricted to instruments with minimal credit, market and liquidity risk; (iii) that CCPs should hold customer collateral at one or more supervised and regulated entities that have robust accounting practices, safekeeping procedures and internal controls; (iv) requiring CCPs to make the segregation and portability arrangements contained in their rules and policies available to the public in a clear and accessible manner; (v) that provincial market regulators enact rules requiring that every OTC derivatives CCP be structured to facilitate the portability of customer positions and collateral; and (vi) that parties to an uncleared OTC derivatives transaction be free to negotiate the level of segregation required for collateral.
The CSA is accepting public comment on the consultation paper, including with respect to the specific questions posed regarding its recommendations, until April 10, 2012.
The paper is one of a series of eight papers building on the high-level proposals found in Consultation Paper 91-401 released in November 2010. For more information, see CSA Consultation Paper 91-404 Derivatives: Segregation and Portability in OTC Derivatives Clearing.
Posted on February 9, 2012
On January 31, the U.S. Commodity Futures Trading Commission and the Securities Exchange Commission released a joint report on how swaps and security-based swaps are regulated internationally. Specifically, the report describes the regulatory framework for OTC derivatives in the Americas, EU and Asia, analyzes the similaries and differences across jurisdictions, considers issues regarding harmonization and makes a number of regulatory recommendations.
Posted on February 7, 2012
On February 3, IIROC, as part of its plain language rule re-write project, published a proposed series of rules respecting margin requirements. The proposed rules are intended to, among other things, clarify IIROC expectations respecting certain rules, ensure that the rules reflect current industry practice, ensure consistency with other dealer member rules and streamline the decision making and rule interpretation process.
A number of substantive revisions to current rules are also proposed. These include new provisions setting out the steps a dealer must take in deciding whether to allow a client to trade on margin, requiring that dealers obtain a margin ruling from IIROC staff when the margin treatment for a particular investment product is not specified within IIROC rules, and setting out the margin requirements for government and other non-commercial debt called for redemption.
IIROC is accepting comments on its proposals for 90 days from the publication of its notice. For more information, see IIROC Notice 12-0042.
Posted on February 3, 2012
The Toronto Stock Exchange announced today that it has adopted amendments to its Company Manual to introduce a Canadian Due Bill tracking system. As we discussed in an earlier post, the TSX proposed a Due Bill system, intended to "improve the accuracy and timeliness of the valuation reporting of client's (sic) holdings when securities undergo certain material corporate events", in December 2011. No changes were made to the proposed amendments, and the amendments have now been approved by the OSC.
Posted on February 2, 2012
The Investment Industry Regulatory Organization of Canada (IIROC) today announced the implementation of single-stock circuit breakers to facilitate a halt across all marketplaces in the trading of a security experiencing rapid price movement. The circuit breaker program is intended to address short term, unexplained price volatility in individual securities.
Specifically, securities that are part of the S&P/TSX Composite Index, as well as ETFs comprised principally of listed securities, will be subject to trading halts in the event of a price increase or decline of at least 10% in a five minute period. The circuit breaker will initially halt the particular security for five minutes, and this time may be extended for a further five minute period if a significant imbalance of buy and sell orders remain. Circuit breakers will not be active in the first 20 minutes following the regular market opening nor in the 30 minutes prior to the regular close of trading.
Should IIROC determine that a further halt is required such as, for example, to allow for the dissemination of material news, IIROC may replace the single-stock circuit breaker halt with a traditional "regulatory halt". Any trades executed after the triggering of the circuit breaker but prior to the halt at more than 5% beyond the trigger price would be cancelled.
Single-stock circuit breakers will be implemented as part of an implementation phase expected to last between six months and a year, during which time IIROC intends to monitor trading in all securities on Canadian marketplaces. Following the initial implementation phase, IIROC intends to review the single-stock circuit breaker program and publish the results of its review, at which point it will solicit comment on whether adjustments should be made to the terms of the program.
IIROC today also released the public comments received in response to its initial proposals, released in November 2010, as well as its responses. The circuit breaker program announced today will ultimately be more limited than IIROC's initial proposal, which would have applied to all securities listed on a Canadian exchange. For more information, see IIROC Notices 12-0040 and 12-0041.
Posted on January 30, 2012
On January 27, the Investment Industry Regulatory Organization of Canada (IIROC) issued guidance with respect to the process to be followed by dealers, users and subscribers seeking to obtain an interpretation of, or exemption from, a provision of UMIR. The notice states that interpretation and exemption requests may be sought by phone or email. In the case of the latter, IIROC staff will generally require certain contextual information, including the name of the security, the facts giving rise to the request and an explanation as to why the exemption is necessary or desirable. In cases where an exemption request has been allowed or denied, staff will follow up with a written ruling.
The notice also provides guidance with respect to requests that a dealer be able to act as principal or agent in respect of a trade to be completed "off-marketplace". According to IIROC, it will grant such exemptions if the execution of the trade on a marketplace would be disruptive of a fair and orderly market or impractical in order for the seller, purchaser or their agents to comply with applicable securities legislation. The notice also sets out the most common exemptions granted to dealers to permit involvement in such trades.
For more information, see IIROC Notice 12-0029.
Posted on January 20, 2012
The OSC has announced that it has approved amendments to TSX rules and policies to repeal rules relating to "anti-scooping" and those setting out minimum capital and stabilization requirements for market makers. The amendments also allow market makers to fill booked odd-lot orders at the order's limit price rather than the prevailing bid and ask, and codify TSX requirements for the minimum guaranteed fill and odd lot facilities. As we discussed in a post last year, the amendments were first published for comment in September 2011. No changes were made to the proposed rule.
Posted on January 13, 2012
Alix d’Anglejan-Chatillon
On November 30, 2011, the Quebec Government passed omnibus amendments to financial services legislation under Bill 7, An Act to amend various legislative provisions mainly concerning the financial sector. Bill 7 amends various Quebec statutes regulating the provision of financial services across a broad range of areas such as whistleblower immunity, electronic communications with regulatory authorities, the receivership process for regulated firms, insider trading rules, fraudulent trading and the disclosure of false information to the Autorité des marchés financiers (AMF), Quebec’s financial services regulator.
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Posted on January 13, 2012
Alix d’Anglejan-Chatillon
On December 16, 2011, Quebec’s financial services regulator, the Autorité des marchés financiers (AMF), tabled proposed amendments to the Derivatives Regulation (Quebec) (QDA) which are intended to implement the provisions of the Derivatives Act (Quebec) governing “qualified persons” (the Proposals) In addition to the derivatives dealer and adviser registration requirements applicable to dealers and advisers in derivatives (the “derivatives registration requirement”), the QDA requires that a person, other than a regulated entity1 who “creates or markets a derivative” must be qualified by the AMF, as prescribed by regulation, before the derivative is offered to the public (the "qualification requirement"). Under an amendment not yet in force, the qualified person must also have the marketing of the derivative authorized by the AMF, as prescribed by regulation (the “authorization requirement”).
As outlined below, the Proposals would, among other changes, significantly increase the disclosure, compliance and reporting requirements applicable to Canadian and foreign intermediaries offering listed derivatives products in the Quebec market to any person, or OTC derivatives to persons other than “accredited counterparties”, unless a discretionary exemption can be obtained. The Proposals are published for a period of 30 days after which the AMF may submit the Proposals to the Minister of Finance for approval, with or without amendments. The AMF is accepting written comments on the Proposals until February 1, 2012.
Market participants conducting derivatives-related activities in the Quebec market should carefully review their product lines, and seek detailed advice as to whether the new qualification/authorization requirements will impact this business and what actions should be taken in contemplation of these new rules.
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Posted on January 12, 2012
Earlier this week, IIROC released draft guidance regarding the language it considers acceptable for marketplace disclosure on trade confirmations. Currently, IIROC's Dealer Member Rules require that trade confirmations disclose the stock exchange or commodity futures exchange on which a trade takes place. In cases where an order is executed on more than one marketplace existing guidance permits dealers to disclose that the order has been executed on multiple marketplaces. The confirmation, however, must also disclose that details of each trade are available upon request.
In light of the move towards a multiple marketplace environment, IIROC's proposals would revise current guidance to allow for more generic disclosure on trade confirmations. Specifically, trade confirmations for securities subject to UMIR could include the following disclosure language: "Traded on one or more marketplaces or markets, details available upon request."
The proposed language would be acceptable in circumstances where an order was executed on a single marketplace in Canada, multiple marketplaces in Canada, a foreign organized regulated market or any combination of one or more marketplace and foreign organized regulated markets.
Comments on the proposals are being accepted until March 9, 2012.
Posted on January 11, 2012
The U.S. Securities and Exchange Commission has adopted an amended "accredited investor" net worth standard that, in accordance with the Dodd-Frank Act, excludes the value of an individual's primary residence. The definition of accredited investor, used to determine the availability of certain exemptions from the Securities Act of 1933 for private and other limited offerings, currently includes individuals exceeding $1 million in net worth. The recently-adopted changes would maintain the $1 million threshold, but no longer allow for a primary residence to be included in calculating net worth. As we described in a blog post last year, the SEC first proposed the change in January 2011. The amended standard will become effective on February 27, 2012.
The accredited investor exemption has also garnered attention north of the border. Specifically, the OSC expressed concern last year that issuers and dealers were improperly relying on the accredited investor exemption to ineligible investors. As we discussed in a November 2011 post, Canadian regulators have now also launched a review of the domestic accredited investor and minimum investment amount exemptions. Under Canadian rules, the accredited investor standard for individual investors includes both a $1,000,000 financial asset test and a $5,000,000 net asset test, with only the latter including an investor’s personal residence (minus liabilities). Depending on the feedback (the consultation period ends on February 29th), possible options include keeping the status quo, retaining the exemptions with adjusted thresholds, limiting the use to certain investors (such as institutional investors), using alternative qualification criteria or imposing other investment limitations.
Posted on January 11, 2012
On January 3, the British Columbia Securities Commission published a revised version of BC Interpretation Note 33-705. The revised note, which describes how the BCSC interprets and applies its conditions of registration for investment dealers with a BC office that trade in the U.S. OTC markets, reflects the fact that the conditions have now been extended to December 31, 2014.
Posted on January 11, 2012
On January 9, the Investment Industry Regulatory Organization of Canada (IIROC) published guidance regarding the procedures to be followed by a Participant (dealer) wishing to guarantee a trade price for a client order that outperforms a benchmark price. As we discussed last year, IIROC released a draft version of the guidance on July 4 that would allow a certain amount of "outperformance" to be guaranteed under certain circumstances if a dealer agreed to take the trade as principal. Under the initial 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.
The final version of the guidance released yesterday, however, has been revised to address public comments received. Of particular interest, the guidance now provides that a dealer may guarantee outperformance up to a maximum of the greater of 50% of the Participant's historical realized outperformance of the same benchmark over the prior calendar quarter and 25 basis points. Thus, dealers will be able to guarantee outperformance of 25 basis points, even in the absence of a demonstrated ability to outperform the benchmark.
For more information, see IIROC Notice 12-0010.
Posted on January 4, 2012
Yesterday, the Investment Industry Regulatory Organization of Canada (IIROC) published Notice 12-0001 relating to securities trading halts in coordination with the application of "circuit breakers" on U.S. markets for the first quarter of 2012. 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 Q1 2012 are 1,200 points, 2,400 points and 3,600 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%) - 1,200 points; Level 2 (20%) - 2,350 points and Level 3 (30%) - 3,550 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.
Posted on December 22, 2011
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.
Posted on December 16, 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.
Posted on December 9, 2011
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.
Posted on December 2, 2011
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.
Posted on November 30, 2011
Earlier this year, the SEC adopted final rules establishing reporting requirements for market participants whose transactions in national market system securities equal or exceed two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month. As we discussed last year, the SEC initially proposed such requirements in April 2010 to identify large market participants and collect information regarding their trades in order to be able to monitor the impact of large trader activity on the securities market.
The reporting requirements, effective as of October 3, 2011, are intended to provide the SEC with data to support its investigative and enforcement activities.
Posted on November 25, 2011
The Canadian Securities Administrators released a consultation paper today addressing the regulation of OTC derivatives markets. Specifically, the paper makes various recommendations regarding surveillance and monitoring, market conduct and enforcement that are intended to strengthen financial markets and manage specific risks related to OTC derivatives. The paper is one of a series of eight papers building on the high-level proposals found in Consultation Paper 91-401 released in November 2010.
Surveillance and Monitoring
Citing the limited market information currently available to regulators relating to the trading of OTC derivatives, the paper recommends that further study and research be undertaken on the development of a comprehensive surveillance system for monitoring OTC derivatives markets to supplement current market surveillance. According to the report, a comprehensive approach to surveillance and monitoring would include enabling regulator access to trading data and monitoring participant positions.
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Posted on November 25, 2011
Mihkel E. Voore and Ramandeep Grewal -
The Canadian Securities Administrators (CSA) proposed amendments today intended to expand the scope of marketing activities that can be conducted in connection with prospectus offerings and to clarify other related restrictions applicable to bought deals.
The amendments proposed to National Instrument 41-101 General Prospectus Requirements (NI 41-101) and National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) expressly codify permissible “pre-marketing” and “marketing” activities that can be conducted prior to and after the filing of a preliminary prospectus. These proposals should provide some much needed clarity and guidance in connection with marketing activities given the disconnect between what is currently permissible under securities legislation and the practical reality of how offerings are marketed. In addition to expanding the scope of marketing activities that are expressly permitted, the CSA also clarify when the size of a bought deal can be enlarged or the bought deal syndicate can be expanded.
While the CSA’s stated intention is to expand the range of permitted activities, their views on matters such as non-offering roadshows, the commencement of distributions, and the exclusion of “market out” clauses from bought deal bid letters, may be at odds with some of the practices currently pursued by certain market participants.
The following are some highlights of these proposals, which will be discussed in detail in future updates:
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Posted on November 23, 2011
Earlier this month, the U.S. Securities and Exchange Commission announced the approval of additional listing criteria for companies that become public through a reverse merger.
Under the new requirements, a reverse merger company will be unable to list on the NYSE, NYSE Amex or Nasdaq until the completion of a one-year "seasoning period" following the merger. During this period, the company must trade in the U.S. over-the-counter market or another regulated U.S. or foreign exchange. The company must also file with the SEC all required reports since the merger and would have to maintain a minimum share price for a sustained period immediately prior to its listing application. Exemptions to the new requirements, however, would be available in certain circumstances.
Posted on November 18, 2011
Ramandeep Grewal -
The U.S. Securities and Exchange Commission recently imposed a $1 million administrative penalty against Pipeline Trading Systems LLC for misleading investors in connection with the operation of its dark pool. Pipeline was launched in 2004 as an alternative trading system operating as a “crossing network” to facilitate trades among institutional investors while minimizing market impact associated with information leakage about their large buy or sell orders. To that end, Pipeline advertised that to prevent pre-trade information leakage, it would not reveal the side or price of a customer order before a trade was completed. Pipeline also claimed that all users were treated equally.
According to the SEC, Pipeline’s claims were false and misleading because one of its affiliates (a trading entity owned by its parent company) filled the vast majority of customer orders on Pipeline’s system, by seeking to predict the trading intentions of Pipeline’s customers and trade elsewhere in the same direction as customers before filling their orders on Pipeline’s platform. Accordingly, the SEC found that Pipeline generally did not provide the “natural liquidity” it advertised. The SEC further found that the trading affiliate was given certain advantages not available to other users. These included providing the affiliate with a FIX connection to Pipeline's graphical user interface known as the "Block Board", soliciting and receiving input from the affiliate regarding the minimum order size for each stock, and providing the affiliate with information regarding ATS features designed to "predator proof" the system.
Ultimately, Pipeline was found to have violated the Securities Act prohibition against making false or misleading statements in the sale of securities, as well as Regulation ATS requirements regarding disclosure to be made to the SEC and the implementation of safeguards to protect confidential trading information.
The SEC release quotes Robert Khuzami, Director of the SEC’s Enforcement Division as saying that “[h]owever orders are placed and executed, be it on an exchange floor or in an automated venue, whether dark or displayed, one principle remains fundamental – investors are entitled to accurate information as to how their trades are executed.
Alternative trading systems compete with exchanges for trade execution by providing alternative operation models, trades types and fee structures to facilitate a wide range of execution strategies. Crossing systems or crossing networks generally do not offer price discovery but are intended to facilitate trades between buyers and sellers who quote their prices on other trading systems. Dark pools meanwhile, are trading systems that accept buy or sell orders without pre-trade transparency (disclosure of the details of the trade, specifically price and quantity).
ATSs are regulated in Canada under National Instrument 21-101 Marketplace Operation and National Instrument 23-101 Trading Rules. ATSs are also regulated by the Investment Industry Regulatory Organization of Canada (IIROC) through its UMIR and Dealer Member Rules.
Posted on November 11, 2011
Ramandeep Grewal -
The Canadian Securities Administrators (CSA) announced yesterday that they are undertaking a review of the “$150,000 minimum investment amount” and the “accredited investor” exemptions that are commonly used to raise financing on a prospectus exempt basis. The publication of CSA Staff Consultation Note 45-401 (Consultation Note) commenced a public consultation process intended to solicit feedback from investors, issuers and others on a number of possible changes to these exemptions.
The Consultation Note raises a number of questions, including whether these exemptions should be premised on financial resources (ability to withstand financial loss or obtain expert advice), access to financial and other key information about the issuer, educational background, work experience, investment experience, or some other criteria, and whether the involvement of a registrant (who has an obligation to recommend only suitable investments) addresses any concerns.
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Posted on November 4, 2011
On November 1, the Ontario Securities Commission hosted OSC Dialogue 2011, a conference featuring sessions with securities regulators and industry participants.
In his opening remarks, Ontario Securities Commission Chair Howard Wetston discussed the OSC's strategic direction and its role in policy development. Specifically, Mr. Wetston considered the changes in Canadian equity markets, including the move to multiple marketplaces, the recent proposals to strengthen enforcement and the need for investor protection.
Meanwhile, other sessions of interest to market participants included discussions of M&A trends, investor issues and regulatory developments. The OSC has now posted audio files of the various sessions on the conference webpage.
Posted on November 3, 2011
Late last month, the U.S. SEC adopted a new rule to require registered investment advisers with at least $150 million in private fund assets under management to periodically file the new Form PF. The amount of information to be reported will depend on whether an adviser belongs to the "large adviser" or "small adviser" cateogry. The latter group, under which the SEC anticipates most advisers will fall, will have to file Form PF once per year. Only basic information regarding such things as size, leverage, investor types and concentration will be required. Large advisers will potentially report on a more frequent basis depending on whether they are a hedge fund, private equity fund or liquidity fund adviser, and will have to include more detailed information.
Meanwhile, commodity pool operators and commodity trading advisers that are dually registered with the CFTC will be able to satisfy certain CFTC filing requirements with respect to private funds, should the CFTC adopt such requirements, by filing the new reporting form with the SEC.
The new requirements represent another step in the implementation of Dodd-Frank. Most private fund advisers will be required to begin reporting following the end of their first fiscal year or quarter to end on or after December 15, 2012. However, certain advisers with at least $5 billion of assets under management will have to begin reporting following the end of their first fiscal year or quarter ending on or after June 15, 2012. Rules requiring the registration of private fund advisers were adopted by the SEC this past June.
Posted on October 28, 2011
The Ontario Securities Commission today published notice of OSC Rule 21-501, which is intended to extend the current exemption for government debt securities from the transparency requirements found in section 8.1 of NI 21-101 until December 31, 2014. The new rule is expected to come into force on December 31, 2011 and replace the current exemption found in section 8.6 of NI 21-101, which expires at the end of the year.
Posted on October 14, 2011
TSX Inc. and TMX Select Inc. published a notice today proposing the introduction of "Cancel on Disconnect" functionality that would provide the automated cancellation of orders in the event of involuntary loss of connectivity between TMX and a client site. According to the notice, the functionality would assist in mitigating the risks associated with having open orders during a loss of connectivity. Comments on the proposal are being accepted until November 14.
Posted on October 11, 2011
On October 7, the Autorité des marchés financiers (AMF) issued a notice of public consultation related to the application filed with the AMF on October 3 by Maple Group Inc. in connection with its proposed acquisition of TMX Group, and the subsequent proposed acquisitions of Alpha Trading Systems Limited Partnership, Alpha Trading Systems Inc. and the Canadian Depository for Securities Limited. The notice outlines the basis of Maple Group's application to the AMF, describes the proposed transactions, considers potential issues raised by the proposed transactions and requests comments on specific questions. Comments are being accepted until November 7. The AMF plans to hold public consultations in connection with the application at the end of November 2011.
Posted on October 7, 2011
The Ontario Securities Commission today issued a notice and request for comment related to the proposed acquisition by the Maple Group Inc. of TMX Group, Alpha Trading Systems Limited Partnership and Alpha Trading Systems Inc., the Canadian Depository for Securities Limited and, indirectly, CDS Clearing and Depository Services Inc. The OSC's notice summarizes the Maple Group's proposal, considers the potential issues raised and requests responses on specific questions. Comments are being accepted until November 7. The OSC also plans to hold policy hearings to consider the proposal in December 2011.
Posted on October 6, 2011
Ramandeep Grewal -
In Canada, prior to the proliferation of (Alternative Trading Systems (ATSs), a security was generally traded on a centralized exchange. As ATSs proliferate, buyers, sellers and their agents have a growing range of options when deciding where and how to execute a trade. ATSs compete with each other and with traditional exchanges by offering, among other things, different operating models, trade types and fee structures. The competition and innovation that are stimulated by the rise in multiple marketplaces also create complications. Regulators must grapple with how to regulate these electronic alternatives to traditional exchanges; registrants (brokers, dealers and advisers) must grapple with how to fulfill their duties to clients and other regulatory obligations in the face of multiple marketplaces; and investors need to be able to understand the available options and the opportunities or pitfalls that they represent.
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Posted on October 6, 2011
Earlier this week, the Investment Industry Regulatory Organization of Canada (IIROC) published Notice 11-0277 relating to securities trading halts in coordination with the application of "circuit breakers" on U.S. markets for the fourth quarter of 2011. 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 fourth quarter of 2011 are 1,100 points, 2,250 points and 3,350 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%) - 1,200 points; Level 2 (20%) - 2,450 points and Level 3 (30%) - 3,650 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 have decreased from those for the third quarter of 2011.
Posted on October 4, 2011
Last week, the BCSC published proposed amendments to the TSX-V Trading Rule Book to eliminate the "anti-scooping" rule. The changes have been proposed in order to level the playing field between professional traders and clients with sophisticated technologies. The amendments, intended to conform to the proposed change to the TSX Rules, will be open for comment until October 31.
Posted on September 30, 2011
The CSA published a staff notice today in response to inquiries about the financial information to be included in a prospectus during the time of an issuer's transition to IFRS. As we have previously discussed, Canadian reporting issuers have generally been required to transition to IFRS effective as of January 1, 2011.
Specifically, the notice highlights the difference between the information required when preparing an IPO prospectus (which must include Q1 IFRS transition information) as opposed to a short form or non-IPO long form prospectus (which need not). Q1 IFRS transition information refers to an opening statement of financial position as at the date of transition to IFRS and IFRS 1 reconciliations for the date of transition to the most recent annual period. The notice also discusses accounting principles for financial statements in prospectuses filed in the first year after transition.
For more information, see CSA Staff Notice 41-306.
Posted on September 29, 2011
Tim McCormick -
The Canadian Securities Administrators (CSA) have introduced a new mandatory regulatory regime for venture issuers intended to provide a more tailored approach to the regulation of the venture market. As discussed in an earlier blog post, on July 29, the CSA published for comment proposed rules and rule amendments in the form of Proposed National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers (NI 51-103), which represents a comprehensive overhaul of the prospectus and private placement requirements, as well as continuous disclosure and governance obligations currently applicable to venture issuers.
The CSA’s proposals are ultimately intended to streamline venture issuer disclosure to reflect the needs of investors, while making disclosure requirements more suitable and manageable for issuers. The highlights of the proposals include replacing all current continuous disclosure and governance requirements (including audit committee and certification requirements) and modifying disclosure requirements in connection with long form prospectus offerings and rules for incorporation by reference in short form prospectuses and other documents. The proposals also introduce substantive corporate governance requirements relating to conflicts of interest, related party transactions and insider trading and propose to require delivery of disclosure documents on request only in lieu of mandatory delivery. Some of these changes are discussed in detail below.
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Posted on September 26, 2011
Last week, Alpha ATS LP announced plans to introduce two new order designations, intended to reduce instances of unintentional locked or crossed markets and trades at worse prices than available on other marketplaces by providing price protection for directed action orders.
Specifically, the "Protect Cancel" DAO designation would execute, to the extent possible, at the national best bid or offer before cancelling any residual volume that would cause a trade at a worse price than available on another marketplace, or unintentionally lock/cross the market. The "Protect Re-price" DAO designation, meanwhile, would execute, to the extent possible, at the national best bid or offer before adjusting the price of any residual volume that would cause a trade at a worse price than available on another marketplace or unintentionally lock/cross the market. Orders would be re-priced to one tick from the opposite of the national best bid or offer.
Other changes proposed by Alpha would eliminate "all or none" orders and improve the handling of mixed lot orders where a security has no odd lot dealer. Comments on the proposed changes are being accepted until October 24, 2011.
Posted on September 23, 2011
The OSC today released a report prepared by its Compliance and Registrant Regulation Branch that summarized the new and proposed rules impacting registrants, provided information intended to assist firms and individuals applying for registration, and identified deficiencies found in compliance reviews of registrants. The report primarily covered the OSC's 2011 fiscal year.
Of particular interest, the deficiencies highlighted by the report include: (i) inaccurate calculations by firms of excess working capital on Form 31-103F1; (ii) inadequate insurance coverage by registered portfolio managers and investment fund managers; (iii) a lack of disclosure by portfolio managers regarding the use of client brokerage commissions; (iv) a delegation of "know your client" and suitability obligations by portfolio managers; (v) EMDs selling exempt securities in reliance on the accredited investor exemption to investors who do not meet the definition; (vi) individuals trading on behalf of EMDs without being registered as a dealing representative with the EMD; and (vii) EMDs inappropriately using investor funds.
The report also provides a number of suggested practices to assist registrants in addressing the various identified deficiencies. Guidance was also included concerning such issues as the use of social media, marketing practices and the provision of online advisory services. For more information, see OSC Staff Notice 33-736.
Posted on September 21, 2011
The Investment Industry Regulatory Organization of Canada (IIROC) yesterday published proposed guidance related to marking orders entered on behalf of insiders and significant shareholders. Specifically, the proposal, intended to vary current guidance, would require all insider orders be marked with the Regulation ID Order Marker irrespective of whether any resulting trade would be subject to insider reporting requirements under applicable securities legislation.
Currently, the need to mark an order as "insider" is correlated to the requirements of NI 55-104 Insider Reporting Requirements and Exemptions in that the requirement generally only applies to orders of reporting insiders not otherwise exempted from reporting obligations in respect of a particular transaction. According to IIROC, the broader application of the marking requirements will improve IIROC's ability to assist in the detection of insider trading violations.
IIROC is accepting comments on the proposed guidance until November 21, 2011. For more information, see IIROC Notice 11-0269. For a background on last year's changes to Canada's insider reporting requirements, see our update of April 21, 2010.
Posted on September 19, 2011
Last week, the Toronto Stock Exchange announced that it had approved amendments to its rules to assist TSX market makers in light of the emergence of multiple marketplaces and an increasingly electronic trading environment.
Specifically, the proposed amendments, which still require the approval of regulators, would eliminate the rules relating to market maker capital requirements, stabilization and anti-scooping, and allow market makers to execute booked oddlots at their limit price. New requirements would also be introduced on the use of the Minimum Guaranteed Fill and oddlot facilities.
Ultimately, the proposed amendments are intended to support market making as a "viable business model" and continue to enhance liquidity on market makers' securities of responsibility. Comments on the amendments are being accepted until October 17, 2011.
Posted on September 19, 2011
As we discussed in a blog post of August 16, the British Columbia Securities Commission recently announced that, effective October 3, 2011, exempt distributions (private placements) in British Columbia will be subject to expanded post-trade disclosure requirements. These new rules are expected to have a chilling effect on private placements into British Columbia, particularly by foreign public companies and investment funds, and other issuers that are not “reporting issuers” (public companies) in Canada.
While issuers making an exempt distribution in B.C. will generally be required to file the new Form 45-106F6 (in addition to filing a Form 45-106F1 in other Canadian jurisdictions, as applicable), issuers that are not reporting issuers in any jurisdiction of Canada will have to comply with more onerous requirements. As we mentioned in our earlier blog post, however, an exempt distribution report on the new Form and on Form 45-106F1 will only be required for distributions effected pursuant to prescribed prospectus exemptions. The practical feasibility of collecting the required information and the fact that the additional information will be publicly accessible must be carefully considered by issuers before they decide to make a private placement in British Columbia.
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Posted on September 14, 2011
Staff of the Canadian Securities Administrators in Alberta, Ontario, Quebec, Nova Scotia, New Brunswick and the Northwest Territories published a notice yesterday setting out their concerns regarding the use of advertising that may attempt to promote an issuer's securities. While the notice applies to all types of media, CSA staff's concerns focus on the television ads used primarily by junior issuers that focus on the positive aspects of an issuer's business or its prospects. In the case of listed issuers, the stock symbol is prominently featured in the ads, whereas contact information is typically provided for investor inquiries for unlisted issuers.
According to CSA staff, such ads may fail to comply with disclosure requirements under securities legislation or may be misleading to investors. According to staff, such ads do not appear to be aimed at selling products or services or raising public awareness of the issuer but, rather, appear to try to promote interest in an issuer's securities. The notice, therefore, reminds issuers of the restrictions on advertising and marketing activities during a distribution or in furtherance of a distribution, as well as the additional disclosure restrictions and requirements applicable to mining and oil and gas projects.
Staff will continue to monitor advertisements by issuers going forward, and suggest that regulatory action could be taken should it appear that an advertisement is misleading to investors or contrary to the public interest.
For more information, see CSA Staff Notice 51-336 Issuers using Mass Advertising.
Posted on September 12, 2011
As we discussed in April, Alpha ATS announced earlier this year that it is seeking regulatory approval to become a recognized exchange. Alpha has since amended the market maker program portion of its application and regulators published the changes for comment last week. Comments are being accepted on the proposals until October 11.
Posted on September 2, 2011
The Canadian Securities Administrators released a staff notice today communicating their concern regarding firms that carry out brokerage activities registering as exempt market dealers. The notice describes such firms as being primarily U.S.-based broker-dealers that are members of FINRA.
According to CSA staff, the EMD category of registration was not intended for firms that conduct brokerage activities (trading securities listed on an exchange in foreign or Canadian markets), and the notice states that permitting such activity would result in differing levels of regulatory oversight between EMDs and those firms subject to IIROC requirements and supervision.
In light of their concerns, the CSA will instead "consider" registering these broker-dealers in the restricted dealer category with terms and conditions, including a requirement that such broker-dealers only deal with permitted clients. Such registrations would also be temporary while the CSA engage in a consultation process to ensure that "appropriate regulatory requirements" apply to all firms undertaking brokerage activities. According to the notice, the consultations will "likely" result in changes to the registration rules.
For more information, see CSA Staff Notice 31-327.
Posted on August 26, 2011
On June 4, 2010, the Investment Industry Regulatory Organization of Canada published proposed amendments to its Dealer Member Rules to address the fairness of pricing and transparency of OTC market transactions. The OSC and various other Canadian securities regulators have now approved the proposed amendments with minor modifications. The OSC's approval notice also contains a guidance note discussing the scope of the fair pricing rule.
Posted on August 26, 2011
As we discussed in April 2010, the Investment Industry Regulatory Organization of Canada proposed amendments to UMIR last year that would, among other things, replace the definition of "Market Maker Obligations" with a definition of "Marketplace Trading Obligations" and make various other changes to odd lot and marketplace trading obligations. The OSC and a number of other Canadian securities regulators have now approved the amendments, which become effective today. For more information, see IIROC Notice 11-0251.
Posted on August 26, 2011
Earlier this week, the Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions released a consultative report that makes various recommendations regarding OTC derivatives data reporting and aggregation requirements. As we discussed in October 2010, IOSCO formed a Task Force on OTC Derivatives Regulation last year with a mandate that included coordinating the efforts of international regulators with respect to OTC derivatives and producing a report on data reporting and aggregation requirements by July of this year.
Among other things, the report recommends that: (i) at a minimum, transaction level data be reported to trade repositories and that such data include at least transaction economics, counterparty information, underlier information, operational data and event data; (ii) trade repositories implement measures to provide effective and practical data access to authorities; (iii) a standard system of Legal Entity Identifiers be developed and implemented for the aggregation of OTC derivatives data; and (iv) a standard product classification system for OTC derivatives products be developed, led by industry and in consultation with authorities.
The CPSS and IOSCO are accepting comments on the consultative report until September 23, 2011.
Posted on August 26, 2011
Staff of the Ontario Securities Commission today released a notice setting out their views on the application of prospectus requirements and product regulation in connection with cross-listings by foreign exchange-traded mutual funds.
According to OSC Staff, an ETF's exchange listing functions are "the primary distribution channel through which an ETF issues its securities to investors and increases its net assets". As such, OSC Staff do not consider a listing to merely provide a source of secondary market liquidity and a cross-listing would, thus, generally be considered a distribution in Ontario.
Foreign ETF providers must, therefore, file a prospectus and comply with investment fund product regulation before applying to cross-list on an exchange in Ontario. Foreign providers of comparable products that use a similar distribution structure would also fall under the same requirements.
OSC Staff indicated that they intend to monitor the issue and potentially consider whether a modified approach to cross-listing of foreign investment products is warranted. Staff also stated that they are open to considering exceptions to their approach. For more information, see OSC Staff Notice 81-715.
Posted on August 19, 2011
The Canadian Securities Administrators (other than the OSC) today released proposed amendments to Multilateral Instrument 11-102 Passport System in order to extend the passport system to appropriate provisions proposed for NI 21-101 Marketplace Operations and to certain new provisions of NI 23-103 Electronic Trading and Direct Electronic Access to Marketplaces. According to the CSA, the amendments are intended to "maintain the effectiveness of the passport system." Comments on the proposals are being accepted until October 20.
Posted on August 16, 2011
As has been widely reported, various European regulators have recently enacted temporary bans on short selling financial stocks in response to the market volatility of the past few weeks. Countries that have taken such steps include France, Italy and Spain. Meanwhile, it has been reported that Germany's Minister of Economics and Technology, Philipp Roesler has called for a similar short-selling ban across G-7 countries.
Whether such temporary bans will have the effect of calming markets remains to be seen. As we discussed in February 2009, an IIROC study that reviewed the impact of the Canadian restrictions on short sales in 2008 found that there appeared to be "no appreciable effect" on the price of the applicable securities.
Posted on August 15, 2011
On August 8, the Toronto Stock Exchange issued guidance stating that it considers any arrangement or agreement that decreases the effective conversion price of a previously issued convertible security to be subject to section 610(c) of the TSX Company Manual. Thus, any such agreement, including inducement payments in cash or securities to convert the securities, will be required to be submitted to the TSX for approval and will be reviewed as a new private placement.
The TSX also reminded listed issuers of their responsibility under section 602 of the Company Manual to promptly notify it of any changes to the material terms of a transaction whether or not such an amendment includes a further issuance of securities. The TSX thus stated that it must be promptly notified in advance of any transaction that may have the effect of decreasing the effective conversion price of previously issued convertible securities.
For more information, see TSX Staff Notice 2011-0003.
Posted on August 2, 2011
On July 29, the Investment Industry Regulatory Organization of Canada published proposed amendments to the Universal Market Integrity Rules that address the regulation of dark liquidity on Canadian markets.
The release of IIROC's proposals represents the next step in the effort by the Canadian Securities Administrators and IIROC to adopt regulations to address issues surrounding dark pools and dark orders. The proposed amendments released last week follow various previous steps taken by regulators to consider the issues, including a joint CSA/IIROC consultation paper released in 2009, a consultation forum held in March 2010 and a CSA/IIROC position paper published in November 2010.
Among other things, the proposed amendments would (i) introduce or amend, as the case may be, definitions of "better price", "dark order" and "last sale price"; (ii) allow IIROC to designate a minimum size for orders that are not displayed in a consolidated market display; (iii) allow IIROC to designate a minimum size of an "iceberg" order that must be displayed in a consolidated market display; (iv) provide that orders entered on a marketplace must trade with visible orders on that marketplace at the same price before trading with dark orders at the same price on that marketplace; and (v) require, subject to certain exceptions, an order entered on a marketplace that trades with an order that has not been displayed in a consolidated market display to either receive a better price or be for more than 50 standard trading units, or have a value of more than $100,000.
Comments on the proposals are being accepted until October 27, 2011. For more information, see IIROC Notice 11-0225.
For a discussion of the regulatory framework for dark liquidity, see IIROC Notice 11-0226 / Staff Notice 23-311, which was also published last week and contains a summary of public comments in response to the CSA/IIROC position paper of November 2010. Also see our post on the proposed amendments to NI 21-101 Marketplace Operations, which were published in March.
Posted on July 19, 2011
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.
Posted on July 15, 2011
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.
Posted on July 13, 2011
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.
Posted on July 6, 2011
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.
Posted on July 6, 2011
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.
Posted on July 5, 2011
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.
Posted on June 23, 2011
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.
Posted on June 17, 2011
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.
Posted on June 16, 2011
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.
Posted on June 15, 2011
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.
Posted on June 10, 2011
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.
Posted on May 27, 2011
On May 20, the OSC published a request for comment on proposed amendments to the CDS Rules that would require participants to withdraw securities from the CDSX system in uncertificated format where the issuer offers a direct registration system. The notice provides a description of how the paperless processing would work:
Under the amended Rules, when a participant withdraws a security from CDSX and the issuer uses DRS (direct registration system), CDSX will default the withdrawal request to DRS format instead of a physical certificate; the participant will not have the option to choose certificated format for the withdrawn securities. The transfer agent will not deliver a physical certificate evidencing the withdrawn security. Instead, the transfer agent will issue a statement to the new registered holder of the withdrawn security confirming that the security has been transferred and is now registered in the name of the new holder (generally the participant's customer).
The proposal is intended to progress the objective of paperless processing of securities transactions and holdings.
Meanwhile, another notice released the same day proposed allowing CDS to establish limited exemptions to the requirement that all entitlements on eligible securities be paid by an acceptable electronic means. While the requirement is scheduled to become effective on November 1, 2011, CDS determined that not all issuers and agents are yet able to comply with the requirements.
Both proposals are open for 30-day comment periods.
Posted on May 24, 2011
TSX Inc. recently approved amendments to its rules, which have now been submitted to the OSC for approval, that would facilitate the trading of securities that are not listed on the TSX but are listed on another exchange recognized by a Canadian securities regulator. The OSC has now published the proposal for a public comment period that runs until June 20.
Specifically, the proposed amendments would distinguish between securities that are listed and traded on the TSX and those that are not listed, but posted for trading. According to the TSX, all securities traded, whether listed or not, would trade in the same book and all trades would be subject to TSX rules. Furthermore, order entry would be identical for both types of securities.
The proposed amendments anticipate growing competition in the Canadian equity trading business, especially in light of Alpha Exchange Inc.'s application to operate as an exchange. According to the notice,
As the multi-marketplace environment in Canada continues to increase its breadth and depth, TSX is in a unique position to meet the needs of its Participating Organizations (POs) and investors. Clarifying the TSX Rules to permit trading in securities that are not listed by Toronto Stock Exchange allows TSX to leverage its trade execution strength in the event that it determines to trade securities that are listed on another Canadian exchange.
Posted on May 19, 2011
Later this afternoon, the Investment Industry Regulatory Organization of Canada (IIROC) will be posting on its website a recorded webcast considering the Canadian and U.S. perspectives on fiduciary standards and the differences between such a standard and the suitability standard. The webcast will be available for viewing as of 4:00 p.m. today.
As we wrote in March, SEC staff have recently recommended a uniform fiduciary standard for investment advisers and broker-dealers in the U.S. Our colleague Ed Waitzer also considered the standards to which financial advisers in the U.S. and Canada are subject in his post of February 17, 2011.
Posted on May 13, 2011
The OSC today released a staff notice expressing concern that issuers and dealers are relying on the accredited investor exemption to sell exempt securities to individual investors who do not meet the applicable requirements of the exemption. According to the OSC, many dealers are failing to collect adequate know-your-client (KYC) information to reasonably determine whether the investor is an accredited investor, and today's notice is intended to set out the OSC's expectations for issuers and dealers selling securities to accredited investors.
The notice focuses on the $1,000,000 financial asset and $5,000,000 net asset tests that apply to individual investors under the definition of "accredited investor" in National Instrument 45-106 Prospectus and Registration Exemptions. Staff have expressed concern that the two concepts are being confused. The higher threshold test based on "net assets" could include an investor's personal residence or other real estate (minus liabilities) whereas the lower test based on "financial assets" does not. According to staff, some dealers are not making it clear to clients that a personal residence or other real estate cannot be included for the purposes of determining financial assets.
The notice also provides a non-exhaustive list of steps that dealers should take when selling exempt securities, including:
- reading and understanding the definition of accredited investor;
- developing an accurate form for collecting KYC information;
- explaining the accredited investor definition to clients and ensuring that the KYC forms are properly completed;
- not selling an exempt security unless there is sufficient information to determine whether the client qualifies;
- ensuring the exempt security is suitable for the client;
- reviewing the KYC form;
- retaining applicable documentation;
- establishing appropriate policies and procedures; and
- reporting the sale of exempt securities.
Notably, with respect to the issue of sufficient information, the notice states that it is not sufficient for issuers and their dealers to simply rely on a client initialling or checking off a box on an accredited investor certificate and that the information contained in the client's completed KYC form or other documentation must also demonstrate that the investor meets the test. Verbal representations, according to OSC staff, are also not sufficient to support that an investor meets the definition.
For more information, see Staff Notice 33-735.
Posted on May 13, 2011
Early last month, the U.S. SEC announced that national securities exchanges and the Financial Industry Regulatory Authority (FINRA) had filed a proposal to replace the circuit breakers for individual stocks, currently in place as part of a pilot project, with a "limit up-limit down" mechanism. Circuit breakers are trading pauses imposed in individual securities due to extraordinary market volatility. The proposed new mechanism, however, would prevent trades in a security from occurring outside of a specified price band. Stocks subject to the current circuit breaker (being those on the S&P 500 Index, the Russell 1000 Index and certain others) would generally be limited to a 5% trading price band, while other equities would be limited to 10% (as compared to prices of that security in the preceding five-minute period during a trading day).
For more information on the circuit breaker pilot project, see our posts of May 19, June 7 and September 21, 2010. Notably, the pilot project has been extended to the earlier of August 11, 2011 or the date on which the limit up-limit down mechanism is adopted.
Posted on May 6, 2011
The Canadian Securities Administrators today released a revised version of CSA Staff Notice 24-305, which sets out questions and answers regarding compliance with National Instrument 24-101 Institutional Trade Matching and Settlement. The original version of the notice, published in December 2007, was updated to reflect recent amendments to NI 24-101 that came into effect last year and to address inquiries received by the regulators.
As we discussed in April 2010, the institutional trade matching requirement of noon on T + 1 was phased in and has been the DAP/RAP requirement since July 1, 2010. These changes were part of a comprehensive overhaul of institutional trade matching requirements first introduced in 2007 and discussed in detail in our post of June 2007.
Posted on May 6, 2011
As we discussed in posts of February 25 and March 18, IIROC has requested comments on proposed amendments to the UMIR that would, among other things, repeal short sale price restrictions currently applicable on Canadian markets. The comment period for the proposed amendments is quickly drawing to a close and ends on May 26, 2011. IIROC's proposals would see the repeal of the tick test and introduce the requirement that all short sales be marked as such. However, orders from accounts meeting specific requirements (including certain arbitrage and institutional accounts) would qualify for a "short-marking exempt" designation.
Of particular interest in the notice are IIROC's comments regarding the disclosure of short sale activity. Specifically, in response to the IOSCO principle stating that short selling should be subject to a reporting regime that provides timely information to the market or market authorities, IIROC confirms that it recognizes the problems associated with current short position reporting. IIROC communicates its intention, therefore, to produce and publicly release, semi-monthly, short sale summaries based on aggregated trading data across all marketplaces regulated by IIROC for orders that are marked as short sales, to be implemented following the implementation of the proposed amendments. The nature and scope of this disclosure remains to be seen.
According to IIROC, the CSA and IIROC are proposing to publish a joint notice to solicit feedback on whether additional proposals to enhance disclosure of short sales and failed trades in Canada are required. For example, the joint notice may seek comment on whether "disclosure of short positions by institutional investors may be necessary, similar to 'buy-side' reporting requirements that have been or are being widely implemented in other jurisdictions" as well as the type, level and frequency of public disclosure of failed trades in equity securities traded on all Canadian marketplaces and cleared through CDS.
This subsequent notice on enhanced disclosure, however, has yet to be published. In the U.S., meanwhile, the SEC recently issued a request for comment on the feasibility of requiring real-time reporting of short sale positions of publicly listed securities, either publicly or only to the SEC and FINRA. In a sign of what may be to come in Canada, the SEC notice asks specific questions of market participants, including with respect to the benefits and costs of real time reporting of investors' short positions.
Posted on May 6, 2011
CDS Clearing and Depository Services Inc., the national securities depository, clearing and settlement hub, today released proposed amendments to replace the intraday continuous net settlement process (which currently runs four times a day) with a real-time continuous net settlement process. Proposed material amendments to CDS procedures to address the replacement of the process were also published. Both sets of proposals are open for comment for 30 calendar days.
Posted on May 3, 2011
Last month, the Ontario Securities Commission announced that it had secured the first finding of guilt for fraud in quasi-criminal proceedings it has brought before the Ontario Court of Justice. The accused pled guilty to fraud contrary to section 126.1 of the Securities Act (Ontario) in relation to his role with a company operating an unregistered securities sales office that offered trading units of limited partnerships fraudulently represented to constitute ownership interests in oil and gas leases. Sentencing is scheduled for November 24, 2011.
Posted on April 29, 2011
The Canadian Securities Administrators (CSA) today published for comment proposed amendments to National Policy 11-201 Delivery of Documents by Electronic Means. The proposals are intended to, among other things, simplify guidance on the form and substance of securityholder consents with respect to electronic delivery of documents and reduce technology-related language in the policy to avoid obsolescence. The CSA is accepting comments until June 29 and has formulated specific questions for the consideration of industry participants and investors.
Posted on April 25, 2011
Mark McElheran
The proposed exempt distribution rules published for comment by the CSA on April 1, 2011, if enacted as proposed, will have a very significant impact on the exempt market for securitization transactions and would effectively transform the exempt market for securitized products into a quasi-public market. In addition to narrowing the scope of eligible exempt investors (creating a special category of “eligible securitized product investors”, which has been discussed in a previous post), the proposed amendments to NI 45-106 would also impose significant disclosure obligations at the time of issuance and on a continuous basis and create certification requirements as part of a broader statutory civil liability regime. The proposed changes to the exempt market are a significant departure from traditional securities regulatory policy and its emphasis on the protection of unsophisticated investors.
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Posted on April 11, 2011
On April 8, the Canadian Securities Administrators (CSA) published for comment proposed National Instrument 23-103 Electronic Trading and Direct Electronic Access to Marketplaces. As we discussed in our post of March 11, the CSA and IIROC have been examining issues relating to direct electronic access and risks associated with electronic trading for some time.
The proposals are intended to regulate electronic trading generally by
- imposing requirements on marketplace participants that electronically access marketplaces. Specifically, the proposal addresses issues regarding marketplace participant controls, policies and procedures and the use of automated order systems;
- imposing a framework around the provision of direct electronic access. For example, participant dealers would have to establish appropriate standards for their clients before providing clients with direct electronic access. Client minimum standards would include appropriate financial resources and a knowledge and ability to comply with applicable regulatory requirements; and
- imposing additional requirements on marketplaces related to electronic trading. For example, the proposal addresses issues regarding reasonable access to a participant's own order and trade information, marketplace thresholds, and clearly erroneous trades.
In developing its proposals, the CSA reviewed related initiatives in the U.S., Australia and the European Union and according to the CSA, its proposed requirements are in line with the principles found in the IOSCO report on direct electronic access. Comments are being accepted on the proposals until July 8, 2011
Posted on April 4, 2011
On April 1, the Investment Industry Regulatory Organization of Canada (IIROC) published Notice 11-0016 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 second quarter of 2011 are 1,200 points, 2,400 points and 3,600 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%) - 1,400 points; Level 2 (20%) - 2,800 points and Level 3 (30%) - 4,200 points, with the effects of the triggers depending on the time of day the threshold drop occurs. 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.
Posted on April 4, 2011
As we discussed on Friday, the Canadian Securities Administrators published for comment last week proposed new rules for regulating securitized products. Our colleagues in the Structured Finance group have published a more detailed review of these proposals, including some of the issues the proposals raise, on their blog.
Posted on April 1, 2011
The Canadian Securities Administrators (CSA) today published for comment proposals to establish a new framework for regulating securitized products. The proposals consist of a new instrument governing supplementary disclosure requirements for prospectus distributions of securitized products, as well as new disclosure and certification rules. According to the CSA, the proposals are intended to facilitate transparency in the securitization market, ensure that investors have access to adequate information, and be proportionate to the risks associated with the types of securitized products available in Canada. Comments are being accepted by the CSA until July 1, 2011.
Posted on April 1, 2011
The Ontario Securities Commission published a staff notice today to advise of procedural changes relating to the review of personal information forms (PIFs) in connection with prospectus offerings. The notice also gives guidance on dealing with common deficiencies found by OSC Staff in preliminary prospectus filings and on timing issues related to issuances of prospectus receipts. As part of the procedural changes relating to PIFs, the OSC is asking that prescribed information be set out in cover letters accompanying the materials filed with a preliminary prospectus in order to facilitate its review of PIFs. The notice also reminds issuers that where an issuer has reason to believe that information contained in a previously filed PIF has materially changed, the issuer should deliver a new PIF for that individual concurrent with filing its preliminary prospectus. For more information, see OSC Staff Notice 41-702.
Posted on April 1, 2011
In a decision released yesterday, the Quebec Court of Appeal found plans for a national securities regulator to be outside the jurisdiction of the federal government. As we recently discussed, an Alberta ruling of last month came to the same conclusion. The issue is set to be considered by the Supreme Court of Canada at hearings scheduled for April 13 and 14, 2011.
Posted on April 1, 2011
The U.S. SEC released a proposal this week directing national securities exchanges to require compliance with new independence requirements for compensation committees. The proposed requirements address matters such as independence of compensation consultants, the compensation committee's ability to retain independent advisers and the compensation committee's responsibility for appointing, compensating and supervising the work of such advisers.
While foreign private issuers (FPIs) would be exempt from the proposed requirements where they provide annual disclosures to shareholders of the reasons for not maintaining an independent compensation committee, those subject to U.S. proxy rules would be subject to similar requirements and the proposal further requests comments as to whether FPIs should have to provide such disclosure on Forms 20-F and 40-F. The SEC is accepting comments on its proposals until April 29, 2011.
Posted on April 1, 2011
The Investment Industry Regulatory Organization of Canada (IIROC) has issued revised guidance on best execution and management or orders, as well as with respect to the use of certain order types. IIROC originally published the guidance for comment in November 2010, and yesterday's notices include a summary of comments received and IIROC responses.
The revised notices provide guidance with respect to the management of order flows in the context of best execution obligations and the use of certain order types in the context of recent developments in Canadian market structure. For more information, see IIROC Notices 11-0112, 11-0113 and 11-0114.
Posted on March 18, 2011
The Canadian Securities Administrators (CSA) today published proposed amendments to NI 21-101 Marketplace Operations, NI 23-101 Trading Rules, their companion policies and related forms with the objective of updating and streamlining the instruments' regulatory and reporting requirements.
According to the CSA, the amendments are intended to: (i) increase consistency and streamline the regulatory and reporting requirements of marketplaces; (ii) revise transparency requirements respecting marketplaces dealing in exchange-traded securities; (iii) increase transparency of marketplaces operations; (iv) address other requirements applicable to marketplaces, such as with respect to conflicts of interest that may arise at a marketplace; (v) provide guidance regarding when a dealer would be considered to operate a marketplace; (vi) extend the current exemption from transparency requirements applicable to government debt securities until December 31, 2014; (vii) extend the obligation to not intentionally lock or cross the markets to marketplaces in certain circumstances; and (viii) revise the existing requirements applicable to the information processors.
The CSA is accepting comments until June 16.
Posted on March 18, 2011
On March 10, the Bank for International Settlements' Committee on Payment and Settlement Systems and the International Organization of Securities Commissions released a consultative report containing a set of principles designed to apply to financial market infrastructures that record, clear and settle transactions in financial markets. The new principles, which consider such issues as credit and liquidity risk management, settlement, efficiency and transparency, are intended to replace the existing sets of CPSS and CPSS-IOSCO standards and provide greater consistency in the regulation and oversight of FMIs worldwide.
The OSC, AMF and Bank of Canada recently cited their participation in developing the report and encouraged Canadian stakeholders to provide comments to IOSCO and the BIS by the July 29, 2011 deadline.
For more information, see Principles for financial market infrastructures.
Posted on March 18, 2011
Raman Grewal
As we discussed in February, the Investment Industry Regulatory Organization of Canada released proposed amendments to the Universal Market Integrity Rules last month that would repeal the restrictions on the price at which a short sale may be made on Canadian markets.
As discussed in detail in our post of April 28, 2009, currently under UMIR, a short sale may not be made unless the price is at or above the last sale price for that security, subject to certain exceptions (referred to as the tick-test or the “uptick rule”) and there must be a “reasonable expectation” of settling the trade.
Under the proposed amendments, all price restrictions relating to short sales would be repealed and all short sales would be subject to the requirement to be “marked” as short sales, other than those exempt from marking as “short-marking exempt” orders. IIROC would have the ability to designate securities as being “short sale ineligible securities” and “pre-borrow” requirements would be imposed on certain securities (requiring that the person entering the order have made arrangement to borrow the securities that would be required to settle the trade prior to the entry of the order).
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Posted on March 14, 2011
In late January, the U.S. SEC submitted a staff study to Congress that recommended a uniform fiduciary standard for investment advisers and broker-dealers that provide securities investment advice to retail customers. The study, which noted that broker-dealers are generally not currently subject to a fiduciary standard under federal securities laws, recommended a fiduciary standard no less stringent than currently applied to investment advisers be extended to broker-dealers. The SEC was required to undertake the study to comply with Dodd-Frank, and the study also provided suggestions for further harmonization of the broker-dealer and investment adviser regulatory regimes. Whether the study's recommendations are followed through with, however, remains to be seen. According to the SEC, the views expressed in the study are those of SEC staff and "do not necessarily reflect the views" of the SEC or individual commissioners.
In Canada, standards applicable to registrants such as dealers and advisers were somewhat harmonized in conjunction with the coming into force of the new registration regime for dealers, advisers and investment fund managers. Work also continues on IIROC's Client Relationship Model project, which attempts to address issues relating to such things as conflicts of interest management and suitability assessment. For a further discussion, see Ed Waitzer's post of February 17, entitled "Make advisors work for investors".
Posted on March 11, 2011
According to the Ontario Securities Commission's website, the OSC intends to publish a rule for comment next month to address electronic trading and direct electronic access to marketplaces. While the OSC's website doesn't provide specifics on the proposed rule, the OSC Market Regulation Branch provided some information in its Annual Report of October 2010. Specifically, the Annual Report stated that the CSA and IIROC were examining issues relating to direct market access (DMA) and developing a proposal to address risks associated with electronic trading (such as market risk, and credit risk), DMA and other issues associated with technology. Other issues cited in the report include high frequency trading, co-location and outsourcing.
Meanwhile, IIROC's Market Regulation Policy Quarterly Update of October 2010 also noted the work of the CSA and IIROC and added that the regulators were taking into account emerging issues relating to high frequency trading, co-location and outsourcing as well as regulatory initiatives in the US and elsewhere, including, modified NASDAQ Rule 4611 and the SEC’s Proposed Rule 15c3-5. According to the update, the principles contained in the Consultation Report on Direct Electronic Access, published by the Technical Committee of IOSCO in February 2009 and those contained in Principles for Direct Electronic Access to Markets, the Final Report of the Technical Committee of IOSCO, issued in August 2010 will also inform the policy development process.
Posted on March 11, 2011
On February 28, the Alberta Securities Commission proposed the repeal of Blanket Order 91-503, which currently exempts most over-the-counter derivatives from the definition of "futures contract" under the Alberta Securities Act and, thus, exempts such OTC derivatives from regulation as "securities".
The ASC would replace Blanket Order 91-503 with Rule 91-505 Over-the-Counter-Derivatives, which is intended to restore the ASC's authority to regulate OTC derivatives transactions as futures contract transactions under the Act. The proposed Rule 91-505, however, would recognize the fact that such transactions are generally confined to large institutional entities and exempt distributions of a futures contract from the prospectus requirement under the Act.
However, an exemption from the dealer registration requirement would only apply to OTC physical commodity contracts. The Rule defines OTC physical commodity contract to mean a futures contract that (i) is not an exchange contract; (ii) contains an obligation to make or take future delivery of a commodity other than cash or a currency; and (iii) does not allow for cash settlement in place of physical delivery.
Unless addressed in the context of further harmonization of dealer registration requirements or otherwise, as it currently stands, the proposal replaces the broader dealer registration exemption with a narrow exemption limited to OTC physical commodity contracts. As such, under the proposal, there would no longer be an exemption for qualified parties.
The ASC is accepting comments on its proposal until April 29, 2011. For more information, see ASC Staff Notice 91-703 Over-the-Counter Derivatives.
Posted on March 8, 2011
The Alberta Court of Appeal has just released its decision on the reference made by the Alberta government regarding the federal government's plan to implement the proposed federal Canadian Securities Act. According to the Alberta Court of Appeal, the proposed Act exceeds the constitutional authority of the Parliament of Canada as it encroaches on provincial jurisidiction.
The Alberta Court of Appeal's decision in one of among three references currently pending on the issue. The Department of Finance released the proposed Canadian Securities Act in May 2010 and the Canadian Securities Transition Office has since been working on a plan for transitioning securities regulation to a federal regulator. The Quebec Court of Appeal held hearings on the constitutionality of the federal Act in January, while the Supreme Court of Canada is scheduled to hold hearings on the issue on April 13 and 14, 2011.
Posted on March 7, 2011
As part of its plain language rules rewrite project, the Investment Industry Regulatory Organization of Canada (IIROC) recently released proposed Rules 2100 through Rules 2700 regarding dealer member organization and registration. Beyond rewriting the rules in plain language, the proposals make a number of substantive changes, including with respect to ownership of a dealer member's securities and dealer member structure, in order to, among other things, clarify IIROC's expectations and ensure that the rules reflect actual IIROC practices.
Comments on the proposals are being accepted for 90 days from publication. For more information, see IIROC Notice 11-0061.
Posted on March 1, 2011
On February 25, IIROC announced that the requirement to provide a report of a trade variation or cancellation will be in effect as of June 1, 2011. The requirement to provide a report of an extended failed trade will also be implemented on the same day. IIROC approved the reporting requirements in October 2008, but had deferred implementation.
For more information, see IIROC Notices 11-0079 and 11-0080.
Posted on February 25, 2011
The Investment Industry Regulatory Organization of Canada today released proposed amendments to the Universal Market Integrity Rules that would repeal the restrictions on the price at which a short sale may be made on Canadian markets. The proposals would also generally require that Participants and Access Persons make arrangements to borrow the securities necessary to settle any short sale prior to the entry of the order if: (i) the security has been designated as a "Pre-Borrow Security"; (ii) the account on whose behalf the order is being entered has previously executed a failed trade that was not rectified within the required time; or (iii) the Participant has executed as principle a failed trade that was not rectified within the required time.
For more information, see IIROC Notice 11-0075.
Posted on February 25, 2011
The Canadian Securities Administrators yesterday published guidance regarding the use of a "Fund Facts" document to an satisfy current prospectus delivery requirements. While amendments to NI 81-101 Mutual Fund Prospectus Disclosure to finalize requirements to produce and file the Fund Facts document became effective on January 1, 2011, the use of the Fund Facts will not be mandatatory until later this year. Yesterday's notice, however, anticipates requests by investment funds for exemptive relief to use the Fund Facts before their mandatory use (April 8, 2011 to begin filing the Fund Facts documents with prospectuses, while funds will have until July 8, 2011 before the Fund Facts documents must be filed for each class or series of securities of the mutual fund).
As such, the guidance sets out a number of terms and conditions that the CSA anticipates requiring as part of such an exemption:
Continue Reading...
Posted on February 22, 2011
According to an article in today's Globe and Mail, the OSC has been "widening the net" as it investigates potential cases of insider trading in advance of major corporate deals and announcements. OSC enforcement director Tom Atkinson is cited as stating that the sources of insider trading are rarely executives of a company but, rather, employees of the law, accounting, consulting and investment firms involved in deals.
The article also discusses the OSC's new Trade Nexus software, which "allows the OSC to search trading data and look for patterns using numerous variables. It can also be used to identify webs of connections as investigators check to see whether more than one person is involved in a case."
Posted on February 18, 2011
The Ontario Securities Commission has now approved new MFDA Rule 2.4.4 and amendments to MFDA Rule 5.1. As we discussed in November, Rule 2.4.4 requires MFDA members, prior to the acceptance of an order, to inform clients of sales and service charges, as well as any other fees to be deducted in respect of the proposed transaction. Meanwhile, amendments to Rule 5.1 require MFDA members to maintain evidence that clients were informed of such fees and charges.
Posted on February 17, 2011
As published in Tuesday's Financial Post
Edward Waitzer -
In January 2004, the Ontario Securities Commission released a concept paper advocating a "fair dealing model." The paper acknowledged that the regulatory regime -- regulating dealers and their representatives through the products they sell -- was based on the outdated assumption that transaction execution is the primary reason people seek financial services. Recognizing that most customers are seeking advice, the concept paper proposed changing the regulatory framework to focus on the advisory relationship.
Financial professionals and salespersons in Canada are allowed to call themselves advisors, irrespective of their professional designation. Few, however, are compensated directly for their advice. Instead, they are paid commissions to sell specific products. Addressing the conflicts of interest that result from commission-based compensation, the paper proposed that retail clients should be entitled to rely on objective advice that is in their best interest and, when there are conflicts of interest, they should be clearly disclosed so that the client can understand the conflicts and how they may affect the advice given.
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Posted on February 11, 2011
The OSC released a staff notice this week regarding business continuity planning and, specifically, the industry-wide test scheduled by IIROC for September 10, 2011. While the testing is voluntary, OSC staff
encourage all dealers, marketplaces and clearing agencies to participate in the September 2011 market-wide exercise organized by IIROC. Participation in this exercise may facilitate the discovery of any potential communication issues, points of failure between industry participants within and across different jurisdictions or other issues with services provided by third-party service providers.
Notably, the notice states that the OSC is also considering whether to make such testing mandatory "through rule proposals or additional requirements in the recognition orders of various entities." For more information, see OSC Staff Notice 11-764.
Posted on February 9, 2011
On January 25, the U.S. SEC proposed amendments to the definition of accredited investor in accordance with the Dodd-Frank Act. Specifically, under the SEC's proposal, while an individual would still need to have a net worth of at least $1 million, individually or jointly with a spouse, to meet the threshold, the amended requirements would now exclude the value of the individual's primary residence from the calculation. Comments on the proposal are being accepted until March 11, 2011.
In Canada, the definition of "accredited investor" in National Instrument 45-106 Prospectus and Registration Exemptions includes individuals with financial assets exceeding $1 million (excluding primary residence) and those with net assets of at least $5 million (including net value of primary residence).
Posted on February 8, 2011
The Technical Committee of the International Organization of Securities Commissions (IOSCO) released a report last week setting out principles designed to assist market authorities when considering requirements regarding point of sale disclosure. Specifically, the principles articulated by the report for disclosure of key information are:
- Key information should include disclosures that inform the investor of the fundamental benefits, risks, terms and costs of the product and the remuneration and conflicts associated with the intermediary through which the product is sold. Such product disclosure could include the name of the investment and type of product, the risk and reward profile of the product and its fees and costs.
- Key information should be delivered, or made available, for free, to an investor before the point of sale, so that the investor has the opportunity to consider the information and make an informed decision about whether to invest.
- Key information should be delivered or made available that is appropriate for the target investor.
- Disclosure of key information should be in plain language and in a simple, accessible and comparable format to facilitate a meaningful comparison of information disclosed for competing collective investment scheme products.
- Key information disclosures should be clear, accurate and not misleading to the target investor. Disclosures should be updated on a regular basis.
- In deciding what key information disclosure to impose on intermediaries and product producers, regulators should consider who has control over the information that is to be disclosed.
Closer to home, as we discussed in December, the Ontario Minister of Finance has now approved amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure, (first published in October 2010 and approved with minor changes) to implement point of sale disclosure for mutual funds. These amendments became effective on January 1.
Posted on February 4, 2011
The Toronto Stock Exchange today released proposed changes to its Company Manual for public comment that would, among other things, create a new subcategory for oil and gas issuers in the development stage. Listing requirements under this subcategory would include contingent resources of $500 million and a minimum market value of the issued securities to be listed of $200 million.
The proposed changes to the Manual also include : (i) amendments intended to pre-empt avoidance of security holder approval requirements in the case of insider transactions regarding private placements; (ii) an exemption from security holder approval for employment inducements where the aggregate number of securities issued to officers under the exemption in the preceding year is no more than 2% of the outstanding securities; and (iii) removing the requirement that rights offerings must be unconditional.
Comments on the proposals are being accepted until March 7, 2011.
Posted on February 3, 2011
IIROC published guidance on February 1 on specific questions respecting “locked” and “crossed” markets in the context of NI 23-101 Trading Rules and its companion policy. The guidance reflects the repeal of the "best price" obligation and the other consequential amendments to UMIR discussed in our post of earlier today. IIROC published a proposed version of the guidance in April 2010 and yesterday's notice also provides responses to comments it received on its original proposals.
For more information, see IIROC Notice 11-0042 and IIROC Notice 11-0043.
Posted on February 3, 2011
The Ontario Securities Commission announced last week that it has approved amendments to IIROC's Universal Market Integrity Rules, proposed in November 2009, that are consequential to the CSA's implementation of changes to National Instrument 23-101 Trading Rules regarding trade-through protection.
Among other things, the amendments, effective February 1, 2011, will repeal the rule and policies respecting the "best price" obligation of participants, provide that the order protection rule cannot be avoided when a participant is considering a trade on a foreign organized regulated market and require participants and access persons to have adequate policies and procedures for handling orders that do not rely on a marketplace to ensure compliance with the order protection rule. For more information, see IIROC Notice 11-0036.
Posted on January 21, 2011
As we discussed on our Structured Finance blog in December 2009, the Saskatchewan Financial Services Commission, Securities Division issued General Order 91-907 in November of that year exempting over-the-counter (OTC) derivatives trading among qualified parties from the registration and prospectus requirements under the Saskatchewan Securities Act, 1988.
The General Order and Companion Policy have now been amended to include an exemption where: (i) the OTC derivative is a contract for the production of natural gas or the purchase and sale of natural gas; and (ii) each party to the contract is engaged in the production of natural gas or the purchase or sale of natural gas.
Posted on January 13, 2011
On December 20, 2010, a provincial/territorial government working group released a consultation paper to elicit feedback on potential options respecting the incorporation of individual sales representatives of registered dealers and advisers. Specifically, the paper considers the benefits and regulatory concerns surrounding the issue of payments by dealers and advisers to non-traditional business structures, as well as the options being examined.
While National Instrument 31-103 Registration Requirements and Exemptions does not deal with the incorporation of individual sale representatives, MFDA Rule 2.4.1 permits individual sales representatives of a MFDA member to have his or her commissions paid directly to a non-registered corporation under certain conditions. IIROC rules, meanwhile, do not allow the relationship between a dealer and a person conducting securities-related business on behalf of the dealer to be that of an incorporated salesperson.
Ultimately, the paper invites feedback on a number of options under consideration, including legislative proposals and amendments to IIROC rules. Comments on the consultation paper are being accepted by the governments of Alberta and Quebec until February 25.
Posted on January 12, 2011
In a speech yesterday at the National Centre for Business Law, Bryan Davies, Vice-Chair of the Canadian Securities Transition Office provided an update on the progress made towards the implementation of a federal securities regulator. Notably, Mr. Davies stated that the Transition Office is moving forward with the view that the implementation of a federal Securities Act would occur in July 2012. As we've discussed in the past, the federal government has referred the proposed Act to the Supreme Court of Canada in order to ascertain whether the Act falls within federal authority.
Posted on January 7, 2011
The Investment Industry Regulatory Organization of Canada today republished a proposal to implement core aspects of its Client Relationship Model Project. IIROC's proposal would address issues relating to relationship disclosure, conflicts of interest management and disclosure, suitability assessment and account performance reporting. Proposed transition periods would range from the immediate implementation for certain provisions relating to conflict identification to three years for certain disclosure to existing clients.
IIROC also stated that the CSA are expected to publish proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions to introduce cost disclosure and performace reporting requirements for all registered dealers and advisers.
Proposals to address CRM issues were originally published in February 2008 and revised rules were subsequently released in April 2009. IIROC's proposal also includes responses to comments received to its April 2009 proposals. Comments on today's proposals are being accepted for 60 days.
Posted on January 4, 2011
The Investment Industry Regulatory Organization of Canada (IIROC) today published Notice 11-0001 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 first quarter of 2011 are 1,150 points, 2,300 points and 3,450 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%) - 1,350 points; Level 2 (20%) - 2,700 points and Level 3 (30%) - 4,000 points, with the effects of the triggers depending on the time of day the threshold drop occurs. Triggering the Level 1 threshold between 2:00 and 2:30 p.m. 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.
Posted on December 21, 2010
On November 19, the SEC announced new rules to give effect to provisions of Dodd-Frank that amend the Investment Advisers Act of 1940. Specifically, the provisions include increasing the asset threshold for advisers to register with the SEC and repealing the private adviser registration exemption. Private advisers able to rely on one of the new exemptions from registration under Dodd-Frank, however, would still be required to satisfy certain reporting requirements.
The SEC also proposed rules to implement the new exemptions under Dodd-Frank, including one available to investment advisers that solely advise private funds if the adviser has assets under management in the United States of less than $150 million. A further exemption would be available to foreign private advisers that: (i) have no place of business the United States; (ii) have fewer than 15 U.S. clients and private fund investors; (iii) have less than $25 million in aggregate assets under management from U.S. clients and private fund investors; and (iv) do not hold themselves out generally to the public in the U.S. as an investment adviser. The SEC's proposals would also clarify the application of this exemption by defining a number of terms in the statutory definition of foreign private adviser.
Posted on December 17, 2010
On Wednesday, the Investment Industry Regulatory Organization of Canada released proposed guidance intended to make transparent the criteria it would use to determine whether to vary or cancel a trade under the authority of the Universal Market Integrity Rules.
Under Rule 10.9 of UMIR, IIROC may vary or cancel a trade that is "unreasonable" or not in compliance with UMIR or any policy. IIROC's regulatory intervention powers are currently exercised under its broad discretion. The proposed guidance is intended to elaborate upon and set out more transparent standards in regard to the exercise of these powers, particularly with respect to its power under 10.9(1)(d) respecting "unreasonable" trades.
In addition to the factors provided by Rule 10.9(2) for determining whether a trade is unreasonable, the proposed guidance also sets out a number of additional factors IIROC will consider, such as whether the volume or number of trades is unusual in the context of the market and whether the trade was made in error or as the result of a deliberate trade. The notice also includes information regarding halts with respect to situations where there has been "asymmetric" dissemination of material information. In this regard, IIROC acknowledges that intervention in trading related to asymmetric dissemination of material information is fairly unique to Canada, but maintains it has intrinsic value in protecting market integrity and providing a clear and transparent remedy to parties harmed by such activity. The relative certainty and immediacy of this remedy being distinguished from the remedy under the statutory regime for civil liability in secondary markets.
With respect to trades that are not in compliance with UMIR, IIROC stated that it may intervene in cases of rule violations that are self-evident at the time of execution, including violations of the client-principal trading requirement under Rule 8.1 of UMIR, the market stabilization price restrictions under Rule 7.7, the requirement not to "abuse" a person with Market Maker Obligations under Part 1 of Policy 2.1 or the requirement to move the market in an orderly manner over a period of time when executing a pre-arranged trade or intentional cross under Part 2 of Policy 2.1.
IIROC is accepting comments on the proposed guidance until February 14, 2011. For more information, see IIROC Notice 10-0331.
Posted on December 15, 2010
Yesterday, the Canadian Securities Transition Office released an update on its activities for the last few months. Notably, the CSTO stated that it has now begun to develop regulations to accompany the proposed federal Securities Act released by the Department of Finance earlier this year. The CSTO intends to seek comments on proposed regulations as work progresses.
Posted on December 10, 2010
On December 8, Ontario's Bill 135, the Helping Ontario Families and Managing Responsibility Act 2010, received Royal Asset. The Act amends the Ontario Securities Act and, among other things, (i) establishes a regulatory framework for trading in derivatives in Ontario; (ii) allows the Ontario Securities Commission to regulate credit rating organizations; (iii) provides the OSC authority to recognize and make decisions related to alternative trading systems and (iv) extends current prohibitions on insider trading and tipping to issuers that have a "real and substantial connection" to Ontario and whose securities are listed and posted on the TSX-V. Most of the amendments came into force on the day of Royal Assent, while certain provisions principally relating to the regulation of derivatives will not come into force until a date still to be proclaimed.
Posted on December 6, 2010
Our colleague Jason Kroft has published an article on our structured finance law blog regarding the recent SEC extension for nationally recognized statistical rating organizations from conflict of interest requirements in Rule 17g-5(a)(3) of the Securities Exchange Act of 1934. The post can be found here.
Posted on December 3, 2010
As we discussed in a post of April 30, IIROC proposed a new dealer regulation fee model earlier this year that would incorporate a "rate by revenue tier" approach to dealer regulation. IIROC has now developed such a market regulation fee model, which it published for comment on November 30. The proposed model would see each marketplace charged a fee based on the marketplace's share of the total number of messages processed by IIROC's surveillance system (in order to recover the IT costs of surveillance), as well as a fee based on the marketplace's share of the total number of trades (in order to recover all other regulation costs). IIROC would continue to collect the market regulation fee from dealer members (the minimum monthly fee would be $4,800 per member), but marketplace-specific costs would be recovered directly from the marketplace that incurred such costs. IIROC is accepting comments on the proposed new fee model until January 29, 2011. For more information, see IIROC Notice 10-0316.
Posted on December 3, 2010
On November 30, the Investment Industry Regulatory Organization of Canada proposed draft guidance regarding the management of order flows with respect to best execution obligations under UMIR. The guidance, released in the context of "a more complex trading environment", sets out a list of frequently asked questions relating to order types in the context of achieving best execution. Namely, the guidance considers issues such as: (i) order routing decisions; (ii) how to manage orders when not all marketplaces are open; (iii) considerations for deciding where to "book" an order; and (iv) obligations when using a third-party vendor for order routing.
Meanwhile, guidance was also proposed regarding the use of certain order types. According to IIROC, "a particular order type may function as designed but the execution outcome may result in an unanticipated price." IIROC stated that it has particular concern with order types without specific execution price limits. Guidance on the subject was also structured as an FAQ, and considered such issues as (i) whether market orders or limit orders should be used "in today's more complex markets"; (ii) whether "stop loss" orders prevent losses in fast moving markets; and (iii) whether "All or None" orders can be used to guarantee a fill of an order at a specific price in volatile markets.
IIROC is accepting comments on the proposed guidance until January 31, 2011. For more information, see IIROC Notice 10-0317.
Posted on December 2, 2010
The TMX Group yesterday published its new TSX Listing Fee Schedule effective as of January 1, 2011. While original listing and sustaining fees remain unchanged, the minimum base fee for additional listings for corporate issuers is increasing by $3,000 across all capitalization levels. By way of example, this increase raises the minimum base fee for additional listings from $2,000 to $5,000.
Posted on November 29, 2010
As we discussed in our post of June 25, the Mutual Fund Dealers Association of Canada proposed a new Rule 2.4.4 earlier this year that would require its members, prior to the acceptance of an order, to inform clients of sales and service charges, as well as any other fees to be deducted in respect of the proposed transaction. Meanwhile, proposed amendments to Rule 5.1 would require MFDA members to maintain evidence that clients were informed of such fees and charges.
The MFDA has now published a summary of comments received to its proposals, as well as MFDA staff responses. Further, the MFDA has released a companion regulation notice to provide further guidance with respect to the application of the proposed amendments.
For more information, see MFDA Bulletin #0455-P.
Posted on November 26, 2010
As we discussed in our post of October 22, the Compliance and Registrant Regulation Branch’s annual report for fiscal 2010 reviews deficiencies identified by staff of the Ontario Securities Commission (OSC) in its review of advisers, investment fund managers and dealers. The Report also highlights initiatives taken by the OSC relating to registrant regulation and provides staff guidance on dealing with identified deficiencies. In a departure from prior reports, the fiscal 2010 report also covers the introduction of the new registration regime, reorganization of the Compliance and Registrant Regulation Branch and common deficiencies found in reviews of registrant applications.
With respect to ongoing compliance requirements, the Report indicates that the percentage of registrants requiring "significantly enhanced compliance" increased from 32% in 2009 to 50% in 2010. Compliance reviews resulting in referral to the Enforcement Branch also increased from 4% in 2009 to 10% in 2010. In addition to general guidance applicable to all registrants, the Report also includes OSC staff views on specific issues relating to investment fund managers, portfolio managers and exempt market dealers, some of which are highlighted below.
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Posted on November 23, 2010
Andrea Boctor and Ramandeep Grewal
Beginning January 1, 2011, virtually every stock option exercise by an employee or director will trigger employer tax withholding and remittance requirements. Stemming from the March 2010 Federal Budget, new rules were introduced into the Canadian Income Tax Act earlier this fall which "clarify" that, effective as of the new year, source deduction requirements apply to stock option benefits. These and other proposed amendments relating to taxation of stock options are summarized in detail in our related Tax Update. The change in policy in respect of withholding and remittance for stock options brings the Canadian tax regime essentially in line with the regimes of other countries, including the U.S. and U.K.
These developments impact both employers and those receiving stock options or similar compensation. Every corporation and every mutual fund trust that sponsors stock option plans to which these rules apply should review the existing terms of its plans, and related administrative procedures, to determine whether tax withholding and remittance can be accommodated in accordance with Canada Revenue Agency (CRA) rules. For public companies, existing stock option plans and agreements should also be carefully reviewed to determine whether shareholder approval is required for any necessary amendments.
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Posted on November 23, 2010
On November 19, the U.S. Securities and Exchange Commission proposed new rules that would require security-based swap data repositories (SDRs) to register with, and provide swap data to, the SEC. The proposal would also require SDRs to accept transaction data and maintain it for at least five years after the expiration of the applicable swap. The SEC has also proposed rules requiring parties to security-based swap transactions to report information regarding each transaction to a registered SDR, which would then be required to publicly disseminate certain information regarding the transaction. The proposals are being made pursuant to Dodd Frank, which authorizes the SEC to regulate security-based swaps. According to the SEC, "[t]aken together, the rules ... seek to provide improved transparency to regulators and the markets through comprehensive regulations for [security-based swaps] transaction data and SDRs." Meanwhile, the Commodity Futures Trading Commission is planning on similar rules with respect to swaps falling under its jurisdiction.
See Release No. 45-63347 - Security-Based Swap Data Repository Registration, Duties, and Core Principles and No. 34-63556 - Regulation SBSR - Reporting and Dissemination of Security-Based Swap Information.
Posted on November 22, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) released a proposal for single-stock circuit breakers last week that would halt trading of a security experiencing "rapid, significant and unexpected price movement." The proposal would apply to all securities listed on a Canadian exchange, including inter-listed securities, and would provide tiers of trigger levels in order to "preserve a fair and orderly market" in times of extreme volatility.
Specifically, under the proposed mechanism, trading in a security listed on either the TSX-V or CNSX would be halted for ten minutes if the security experienced a price swing of the greater of 20% and 20 trading increments in a five minute period. TSX-listed securities that experienced a price swing of at least the greater of 10% and 10 trading increments in a five minute period would be halted for five minutes, with a five-minute extension possible. In either case, IIROC could replace the single-stock circuit breaker halt with a traditional "regulatory halt" where so required. There would be circumstances, however, where a single-stock circuit breaker would not trigger a halt in trading, such as after the imposition of a "regulatory halt" in the trading of that security.
IIROC is accepting comments on its proposals until January 17, 2011. Once it has reviewed the comments received and established the final parameters of its proposal, IIROC intends to develop an alert as part of the "STEP" surveillance platform. While the implementation of single-stock circuit breakers would begin as a manual system similar to the current imposition of trading halts, IIROC intends to ultimately automate the process. According to IIROC, however, automation would not commence earlier than April 1, 2011.
As we've discussed in the past, the U.S. SEC is currently piloting single-stock circuit breakers until December 10, 2010. For more information on the U.S. project, see our posts of May 19 and September 21.
Posted on November 19, 2010
The Canadian Securities Administrators (CSA) and Investment Industry Regulatory Organization of Canada (IIROC) published a joint position paper today that considers, and provides the regulators' views on, the issues associated with dark pools and dark orders. According to IIROC and the CSA, their views are intended to provide "more clarity" around how dark orders should be treated and facilitate "investor understanding and choice" regarding the execution of orders.
The paper follows a year of consultations on the subject and sets out the position of the regulators on a number of issues, namely:
- that only orders meeting a minimum size threshold be exempt from pre-trade transparency requirements;
- that, while, two dark orders meeting the minimum size exemption should be able to execute at the national best bid or best offer, meaningful price improvements should be required in all other circumstances;
- that visible (lit) orders should execute before dark orders at the same price on the same marketplace, except where two dark orders meeting the minimum size exemption can be executed at that price; and
- that meaningful price improvement should be considered as one trading increment as defined under UMIR. For securities with a difference between the best bid price and the best ask price of one trading increment, one-half increment will be considered to be meaningful price improvement.
Comments are being accepted on the position paper until January 10, 2011. Once comments have been considered, the CSA and IIROC intend to propose rule changes as required.
Posted on November 18, 2010
As expected, the government of Ontario has now introduced proposed amendments to the Securities Act (text not yet available) that would allow the Ontario Securities Commission to develop a regulatory framework to govern over-the-counter (OTC) derivatives. According to the government's economic update released this afternoon, the proposed framework would be consistent with the federal government's plan to implement a national securities regulator.
In addition to tackling OTC derivatives regulation, the proposed amendments would also "provide for regulatory oversight of credit rating agencies and strengthen the oversight of alternative trading systems".
Posted on November 18, 2010
According to various media outlets, including the Globe and Mail and the Financial Post, the Ontario government is expected to introduce proposals later today relating to the regulation of derivatives. The expected move may raise the question of how Ontario's proposals will fit with those of other jurisdictions. Watch for more details once the proposals are released this afternoon.
Posted on November 12, 2010
Alix d’Anglejan-Chatillon and Jason Streicher
Omnibus financial legislation introduced by the Quebec government on November 10, 2010 includes technical amendments to Quebec's derivatives legislation, as well as provisions intended to improve the oversight of persons authorized to market a derivative and to strengthen the process of authorization of the marketing of the product.
The technical amendments would include expanding the list of instruments included in the definition of "derivative" under the Derivatives Act (Quebec) (the QDA) to cover contracts for differences (CFDs) specifically.
Bill 128 would also incorporate more detailed requirements to provisions under the QDA that are not yet in force governing persons qualified under the QDA to create or market a derivative. These new provisions include requirements that a qualified person maintain a corporate and organizational structure and adequate human, financial and technological resources to enable it to operate effectively and ensure the security and reliability of its transactions and activities. A qualified person would also be required to have adequate business policies and procedures and appropriate governance practices, including, in particular, with respect to the independence of its directors and the auditing of its financial statements. The amendments also clarify that a qualified person would be required to register as a dealer or offer derivatives to the public through a dealer.
Posted on November 11, 2010
The federal government has just published legislative proposals that would relax one of the conditions for tax-exempt pension fund investment corporation status under the Income Tax Act. That is, under the proposals, there would no longer be a prohibition against such a corporation issuing "debt obligations" and the prohibition would be narrowed to cover issuing "bonds, notes, debentures or similar obligations". The change would be retroactive to 1994.
We believe that these amendments, if adopted, should eliminate concerns that, for example, the assignment to a third party of a right to receive an investor's capital contribution to a limited partnership would be treated as an impermissible debt obligation, where that investor was a pension fund investment corporation.
Interested parties are invited by the Department of Finance to provide comments on the proposals by December 5.
Posted on November 11, 2010
Last week, the U.S. SEC announced that it was extending the date for compliance with its new short sale rule. The change in date is intended to provide more time for exchanges to modify their procedures and market participants to program and test systems for implementation. The new rule, which will restrict the prices at which a stock can be sold short if the stock's price 10% or more in one day, will now take effect on February 28, 2011.
Posted on November 5, 2010
CNSX Markets Inc., the operator of the Canadian National Stock Exchange and Pure Trading has proposed amendments to its Policy 2 that would extend listing eligibility to certain prospectus-exempt debt securities. The amendments to Policy 2 would mirror language contained in its Restated Order. Comments are being accepted on the amendments for 30 days from today.
Posted on November 5, 2010
CDS Clearing and Depository Services Inc. today released proposed amdendments to implement the Canadian Derivatives Clearing Corporation's fixed income clearing facility. According to CDS, the proposals would: (i) create a new mode of settlement indicator enabling participants to instruct CDS to report trades so-identified to a Third Party Clearing System (TPCS); (ii) permit CDS to report trades to CDSS as a TPCS; (iii) limit CDS liability in respect of trades or trade information received from a TPCS; (iv) specify the settlement process by which trades reported to CDS by a TPCS are settled; and (v) permit partial settlement of trades from CDCC as a TPCS. Comments are being accepted on the proposed amendments for 30 days from today.
Posted on November 4, 2010
Our colleague Mike Rumball has published a number of posts on our Structured Finance blog regarding the recent proposals by the U.S. Securities and Exchange Commission regarding asset-backed-securities. His latest considers the potential dampening effect on private placements into the U.S. that may result from the proposed requirement that issuers perform a review of the assets underlying an ABS and disclose the nature of the review.
Posted on November 3, 2010
The Canadian Securities Administrators yesterday published a consultation paper on over-the-counter derivatives regulation in Canada intended to address "some of the deficiencies that have become apparent in the OTC derivatives market". Specifically, the consultation paper provides background on the need for regulation and provides a number of specific proposals. Among other things, the report recommends:
- central clearing of OTC derivatives that are determined to be appropriate for clearing and capable of being cleared, such as standardized derivatives;
- reporting of all derivatives trades by Canadian counterparties to a trade repository;
- electronic trading of OTC derivative products; and
- in accordance with the recommendations of the Basel II Accord, imposing capital requirements proportionate to the risks that an entity assumes.
The focal point of the proposal, being the central clearing of OTC derivatives, reflects the approach taken by the Dodd-Frank Act. With respect to trade reporting to a trade repository, while the report makes no recommendation regarding a specific time requirement for reporting it does state that real-time reporting will ultimately be required. The report further recommends that provincial regulators obtain authority to conduct surveillance on OTC derivatives markets, develop robust market conduct standards and obtain authority to investigate and enforce against abusive practices.
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Posted on October 29, 2010
As discussed last week, the OSC recently released the annual reports of its Compliance and Registrant Regulation Branch and Investment Funds Branch. OSC-watchers can now feast on two more annuals, the fiscal 2010 versions of the Corporate Finance Branch Report and Market Regulation Branch Annual Report. Specifically, the Corporate Finance Branch Report provides issuers with details on its disclosure review programs while the Market Regulation Branch Annual Report provides a summary of key policy activities and initiatives relating to market structure and clearing and settlement.
For more information, see OSC Staff Notice 51-706 and Staff Notice 21-704.
Posted on October 29, 2010
Non-Canadian fund managers urged to thoroughly review implications
As we recently discussed, on October 15, 2010, the Canadian Securities Administrators (CSA) published proposed amendments to National Instrument 31-103 – Registration Requirements and Exemptions (NI 31-103) related to the registration of (i) investment fund managers who carry out investment fund management activities from a location outside of Canada (International IFMs), and (ii) domestic Canadian investment fund managers with a head office in one Canadian province or territory and who carry out investment fund management activities in other provinces or territories (Domestic IFMs). While NI 31-103 currently provides temporary exemptions from registration for such investment fund managers, the proposed amendments are intended to be adopted prior to the expiration of the temporary exemptions on September 28, 2011, meaning that investment fund managers required to be registered must be registered by that date. The CSA are accepting comments on these proposals until January 13, 2011 and specifically invited comments from investment fund managers.
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Posted on October 28, 2010
On October 8, the Canadian Securities Administrators (CSA) published amendments to National 81-101 Mutual Fund Prospectus Disclosure, its companion policy and related forms in furtherance of their project to implement point of sale disclosure for mutual funds. As we discussed in earlier posts of June 2009 and June 2010, the CSA intend to proceed with a staged implementation of the project, with the first stage being the finalization of requirements respecting the preparation and filing of a "fund facts" document.
To that end, the amendments released this month, which take into account feedback received on the CSA's 2009 proposals, set out the content and filing requirements of the fund facts document. To be filed concurrently with a mutual fund's simplified prospectus and annual information form, the document will "highlight key information that is important to investors" in plain language. The document will also have to be made available on a mutual fund's or manager's website.
The CSA expect that the amendments will come into force on January 1, 2011. Mutual funds will be given until April 8, 2011 to begin filing fund facts documents with prospectuses, while funds will have until July 8, 2011 before fund facts documents must be filed for each class or series of securities of the mutual fund. Later stages of the CSA's project will consider point of sale delivery for other types of publicly offered investment funds.
Posted on October 28, 2010
Earlier this month, the Investment Industry Regulatory Organization of Canada (IIROC) published Notice 10-00259 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 have been announced for the fourth quarter of 2010 as 1,050 points, 2,100 points and 3,150 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%) - 1,200 points; Level 2 (20%) - 2,450 points and Level 3 (30%) - 3,650 points, with the effects of the triggers depending on the time of day the threshold drop occurs. Triggering the Level 1 threshold between 2:00 and 2:30 p.m. results 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.
Posted on October 19, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) yesterday released a new Anti-Money Laundering Compliance Guide to replace the IDA's 2002 "Deterring Money Laundering Activity". The new document is intended to provide dealers with guidance on complying with anti-money laundering and anti-terrorist financing requirements in light of the legislative and regulatory changes of recent years.
According to IIROC, since no standard program will be appropriate for all firms, the guidance has been prepared to assist dealers in adapting their compliance program "specifically to their firm's business, ensuring that it covers the scope of their customer base, the types of accounts, the types of transactions, the extent of the firm's international activities and all the risks and other relevant factors within the firm."
See IIROC Notice 10-0273
Posted on October 19, 2010
On October 15, the International Organization of Securities Commissions (IOSCO) announced the formation of a task force intended to coordinate the efforts of international regulators with respect to over-the-counter (OTC) derivatives markets. Specifically, the Task Force on OTC Derivatives Regulation will be charged with developing consistent international standards, coordinating other related international initiatives and serving as a centralized group within IOSCO for the consultation and coordination generally on related issues.
The Task Force's work, to follow a phased approach will include: (i) conducting a study by the end of January 2011 on exchange and electronic platform trading for derivatives; (ii) producing a report by July 2011 on data reporting and aggregation requirements; and (iii) setting out consistent international standards for OTC derivatives regulation in the certain areas.
Posted on October 15, 2010
The Canadian Securities Administrators (CSA) today proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions (31-103) relating to the registration of international investment fund managers and registration of domestic investment fund managers in additional provinces and territories. While 31-103 currently provides temporary exemptions from registration for such investment fund managers, the proposed amendments are intended to be enacted prior to the expiration of the temporary exemptions on September 28, 2011.
Generally, the CSA proposals would require an international investment fund manager to register in a province or territory if the investment fund it manages has local securityholders and the manager, or the fund, has actively solicited local residents to purchase securities of the fund. Domestic investment fund managers would be required to register in another province or territory (in addition to the Canadian jurisdiction in which its head office is located) if the securityholders are local residents of the province or territory and the manager or the fund has actively solicited local residents to purchase securities of the funds.
Meanwhile, the CSA proposed an exemption from the registration requirement for international investment fund managers where the fund it manages is only distributed to permitted clients, subject to certain conditions and thresholds. For the benefit of non-resident investment fund managers, a grandfathering exemption would be available where neither the investment fund manager nor the investment fund has actively solicited local residents after September 28, 2011.
Further, a new notice requirement that would require all investment fund managers to provide a notice to investors regarding non-resident status and the associated risk to investors was also proposed. The Companion Policy to NI 31-103 would also be amended under the proposals to provide guidance on the CSA's interpretation of the registration requirement as well as the term "actively solicited".
The CSA is accepting comments on its proposals until January 13, 2011.
Posted on October 15, 2010
On Wednesday, the U.S. Securities and Exchange Commission published proposed Regulation MC under the Securities Exchange Act of 1934, intended to mitigate conflicts of interest for security-based swap clearing agencies, security-based swap execution facilities and national securities exchanges that post or make available for trading security-based swaps. Under proposed Regulation MC, the agencies, facilities and exchanges noted above would be required to adopt ownership and voting limitations as well as certain governance requirements. Comments are being accepted by the SEC for 30 days after the date of the proposal's publication in the Federal Register.
The SEC also adopted an interim final rule requiring that security-based swap transactions that were entered into before the July 21, 2010 signing of the Dodd-Frank Act (and which had not expired as of that date) be reported to the SEC or a registered security-based swap data repository. According to SEC Chairman Mary Schapiro, "[t]his interim final rule provides a means for the Commission to gain a better understanding of the security-based swap markets, including their size and scope".
Posted on October 15, 2010
The Securities and Exchange Commission (SEC) issued a proposal this week to require issuers of asset-backed securities to perform a review of the assets underlying the relevant securities and publicly disclose the review's findings and conclusions. While the proposal would not dictate the level or type of review to be performed, the SEC expects that the "issuer's level and type of review ... may vary depending on the circumstances." The SEC is accepting public comment on its release until November 15.
Posted on October 13, 2010
The Canadian Securities Transition Office released an update last week outlining the activities it has undertaken since the delivery of its Transition Plan this past summer. According to the CSTO, it has "begun to identify the specific skills required to carry out the activities and tasks required to execute the Transition Plan" and has received regulatory staff seconded by participating jurisdictions. Discussions continue regarding the allocation of further staff.
The CSTO's annual report for 2009-2010 was also recently tabled in Parliament. The report describes the transition office's activities for the past fiscal year, including its consultations with stakeholders and the development of national securities legislation and the Transition Plan.
Posted on October 8, 2010
As part of its ongoing project to rewrite its Dealer Member Rules in plain language, the Investment Industry Regulatory Organization of Canada (IIROC) today published a set of proposed new provisions respecting its members' dealings with clients. The proposals cover such issues as suitability, sales practices, communicating with the public, supervision and complaint handling. According to IIROC, the rewrite is intended to eliminate unnecessary rule provisions, clarify IIROC's expectations with respect to certain rules, ensure that the Rules reflect IIROC's practices and ensure consistency with other rules and applicable securities legislation. Draft guidance was also published by IIROC.
Beyond consolidating existing rules, the proposals also contain substantive changes to current obligations. For example, proposed Rule 3400 states that in order to comply with suitability requirements, members must consider the suitability of the client's account type, trading strategy, order type and the method of financing the trade. Proposed Rule 3500, meanwhile, would require members to provide clients with a commission fee schedule on account opening. Further substantive changes can be found throughout the proposals.
IIROC is accepting public comment on its proposals for 90 days from today.
See: IIROC Notice 10-0266
Posted on October 5, 2010
The TMX Group announced yesterday that it intends to begin operating a new alternative trading system (ATS) in 2011. The new platform, known as TMX Select, is expected to feature expanded trading hours, continuous trading of board lots only and strict price-time priority for visible orders. According to today's Globe and Mail, the TMX Group expects that the new ATS will attract orders from competing platforms, which reportedly now handle an estimated 30 to 35 per cent of trading volume in Canada.
Posted on October 5, 2010
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) released a joint report on Friday outlining their findings respecting the extreme market volatility of May 6, 2010. According to the report, the rapid execution of an automated sell program concerning a large number of futures contracts by a large fundamental trader during a time of high volatility and thinning liquidity was a main contributor to the day's events. The selling pressure from the automated sell program helped cause a liquidity crisis in the contracts and in individual securities.
Meanwhile, CFTC Chairman Gary Gensler stated yesterday that a joint committee of the CFTC and SEC has been asked to consider the report and make recommendations. Mr. Gensler specifically mentioned that he expects to hear recommendations with respect to: (i) requiring executing brokers to have an obligation to enter and exit in an orderly manner; (ii) increasing visibility into the full order book, either in aggregate or in detail; and (iii) potential revisions to market pauses, either for single exchanges or for cross-market circuit breakers.
The Investment Industry Regulatory Organization of Canada released its review of the day's market volatility last month.
Posted on October 1, 2010
Last month, the European Commission unveiled a proposed regulation intended to address short selling and certain aspects of credit default swaps. According to the EC, its proposal would, among other things, improve transaction transparency, provide for a coordinated European framework and address specific risks of naked short selling. If adopted, the regulation is expected to take effect on July 1, 2012.
For more information, see the EC's press release, frequently asked questions, text of the EC proposal, the impact assessment and the summary of impact assessment.
Posted on September 30, 2010
On September 28, the U.S. Financial Industry Regulatory Authority (FINRA) announced that it will file a rule proposal with the Securities and Exchange Commission next month that will allow investors to opt for all-public panels in arbitration claims. According to FINRA, "[g]iving each individual investor the option of an all-public panel will enhance confidence in and increase the perception of fairness in the FINRA arbitration process".
In recent months, the Investment Industry Regulatory Organization of Canada (IIROC) has also been considering changes to its arbitration program. A review of the program was initiated in December 2009, while a request for comments on specific changes was released in August 2010.
Posted on September 30, 2010
The Investment Industry Regulatory Organization of Canada (IIROC) announced the launch of a surveillance system yesterday that will allow it to conduct surveillance across all Canadian equity markets. According to IIROC, the Surveillance Technology Enhancement Platform (STEP) will allow it to "keep pace with the dramatic increase in the speed and volume of trading activity" in Canadian equity markets. Among other things, STEP provides IIROC with an increased monitoring capacity and the ability to more easily identify potential violations, such as with respect to best execution and trade-throughs.
Posted on September 24, 2010
Ivan T. Grbešić and Alex Colangelo
The Canadian Securities Administrators (CSA) released Staff Notice 41-305 on September 24, which discusses the factors considered by regulators when assessing a proposed share structure in an IPO and, specifically, whether a proposed structure is contrary to the public interest. According to the notice, the CSA have encountered numerous IPOs recently where questions with respect to the proposed share structure led to a recommendation against the issuance of a prospectus receipt on such offerings. The CSA is particularly concerned with companies that have already issued an "unusually large" number of shares for