Russia sanctions expanded

The Canadian government today announced it is expanding sanctions that target certain individuals and activities associated with Russia and Ukraine.

While a number of designated individuals were added to the Ukraine sanctions, the Russia sanctions were expanded to include prohibitions against supplying certain goods, financial services or technical services in respect of certain types of oil exploration and production.

Existing prohibitions concerning equity and debt financings were also clarified.

IIROC releases final guidance on underwriting due diligence

On December 18, the Investment Industry Regulatory Organization of Canada released final guidance in respect of underwriting due diligence.

Ultimately, the document sets out a number of key principles respecting underwriting due diligence, as well as associated guidance respecting each principle, including in regards to: (i) policies and procedures for underwriting due diligence; (ii) due diligence plans; (iii) due diligence Q&A sessions; (iv) business due diligence; (v) legal due diligence; (vi) reliance on experts and other third parties; (vii) reliance on lead underwriter; (viii) due diligence record-keeping; and (ix) the role of supervision and compliance.

As we stated in March when a draft version of the guidance was released, while IIROC's intention was to codify common practices and suggestions, the proposed guidance could have represented a departure from what some dealers consider to be the current market standard. In response to this concern, IIROC specifically states that only appropriate matters are identified as being mandatory, and that many of the statements concerning dealers' policies and procedures provide "ample room" for dealers to reflect the contexts of their businesses.

As previously discussed, proposed amendments were published in March of this year, and the final version published yesterday takes into account stakeholder comments submitted to IIROC. The guidance take effect immediately.

For more information, see IIROC Notice 14-0299.

Ontario issues comfort letter to address effects of provincial surtax on mutual fund trusts

Katy Pitch and Darin Renton

On December 11, Ontario’s Ministry of Finance issued a comfort letter to address the unintended effects of the new provincial surtax which have caused a mismatch of a mutual fund trust’s capital gains refund and the Ontario surtax payable on capital gains retained in the trust.

Mutual fund trusts retaining dividends have historically taken advantage of a dividend tax credit and capital gains tax refund to reduce both the basic personal tax payable by individual investors as well as the surtax for a trust on retained taxable dividends and realized capital gains. Under the relevant changes to Ontario’s Taxation Act, 2007 (the “Ontario Act”), however, the dividend tax credit would not have applied to the new surtax, resulting in mutual fund trusts having to pay the surtax on retained dividends.

Continue Reading...

CSA release IIROC oversight review report

The Canadian Securities Administrators today released a report outlining the findings of an oversight review of IIROC's activities. The review specifically sought to assess whether IIROC was in compliance with the relevant terms and condition of its recognition orders, the effectiveness of regulatory processes and the extent to which key regulatory processes were consistent, efficient and fairly applied.

While the review ultimately concluded that IIROC has met the relevant terms and conditions of its recognition orders, the report set out a number of findings (prioritized by significance as high, medium and low) for which corrective action is expected. Findings categorized as high priority include the need for a comprehensive risk management policy and associated procedures, which IIROC has stated will be implemented by March 2015, as well as certain enforcement issues, including in respect of market conduct cases and investigations of unsuitable investments and unauthorized trading. 

OSC and Competition Bureau sign MOU

The OSC and the Competition Bureau announced today the signing of a Memorandum of Understanding intended to promote cooperation between the two agencies.

Specifically, the MOU deals with such issues as the exchange of information and intelligence, cooperative enforcement and joint education and advocacy.

The MOU, which is now in effect, may be amended with mutual consent of the two agencies.

Comment period on cooperative capital markets regime extended to December 8

Canadian jurisdictions participating in the cooperative capital markets regulator project announced today that the consultation period in respect of the draft Provincial Capital Markets Act (PCMA) and Capital Markets Stability Act (CMSA) has been extended to December 8, 2014. The comment period had been originally scheduled to end on November 7, 2014.

For more information on the proposed regime, see our posts on the infrastructure of the proposed new regime, the proposed provincial acts, and the effects of the proposals on derivatives regulation.

 

OSC launches online compliance and regulation guide

On October 27, the Ontario Securities Commission launched a webpage to help registrants find OSC guidance in respect of compliance and regulation matters. Specifically, the webpage, which is organized by topic, provides links to existing OSC notices, reports and guidance. 

Canadian consultation on Capital Markets Acts important to derivatives markets

Margaret Grottenthaler -

As we posted earlier, the Department of Finance has published for consultation legislation to create a cooperative system under which participating provincial and territorial jurisdictions would enact uniform legislation to regulate capital markets within their jurisdictions (the Provincial Capital Markets Act (PCMA)) and the federal government would enact the Capital Markets Stability Act (CMSA) to address systemic risk in national capital markets, criminal matters and data collection across all jurisdictions. A common regulator, the Capital Markets Regulatory Authority (CMRA), would administer the provincial system (in participating jurisdictions) and the federal system.

This post provides further detail on those aspects of the proposed Acts that would regulate derivatives markets. 

Continue Reading...

Proposal for Canadian cooperative capital markets regulator: the Provincial Capital Markets Act

Ramandeep K. Grewal and Paul Burd

On October 9, 2015, the Canadian federal government’s latest initiative to develop a cooperative capital markets regulatory regime continued to progress with the addition of Prince Edward Island as the fifth province to join in on this proposal.

We have previously discussed the infrastructure and governance proposed for the “Capital Markets Regulatory Authority” (CMRA) that would be created under the proposed cooperative regime. As detailed in that post, the CMRA would administer the federal Capital Markets Stability Act (CMSA) as well as the uniform provincial/territorial Provincial Capital Markets Act (PCMA), which would be adopted by each participating province or territory. In this post we take a closer look at the proposed PCMA.

Under the proposal, the PCMA would be enacted by each participating province and territory and takes a platform approach to capital markets regulation. It sets out the fundamental provisions of capital markets law and leaves detailed requirements to be addressed in regulations.  Where the CMSA, aimed primarily at the regulation of systemic risk, introduces a number of new regulatory concepts, the PCMA in contrast has been drafted to closely follow existing provincial securities legislation. While it most closely resembles the current securities legislation of Ontario and British Columbia, elements from other provinces’ legislation are also incorporated throughout. Similar to current securities laws, the PCMA is comprised of different parts relating to different aspects of securities regulation, such as recognition or designation of self-regulatory organizations, registration, prospectus, take-over bid requirements, etc. 

Continue Reading...

Proposal for Canadian cooperative capital markets regulator: Infrastructure and regulatory authority

Margaret GrottenthalerRamandeep K. Grewal and Alex Colangelo - 

As we recently discussed, the federal government, Ontario, B.C., Saskatchewan and New Brunswick have agreed to implement a cooperative capital markets regulatory system intended to foster more efficient Canadian capital markets, increase investor protection and manage systemic risk.

Under the proposed cooperative system, participating provincial and territorial jurisdictions would enact uniform legislation addressing all matters in respect of the regulation of capital markets within their jurisdictions. Federal legislation, meanwhile, would address criminal matters and systemic risk across the country in respect of national capital markets and data collection.

A common regulator, the Capital Markets Regulatory Authority (CMRA), would administer the provincial and federal legislation and regulations under authority delegated by the participating jurisdictions, while a Council of Ministers (CoM) would oversee the CMRA and be accountable to participating jurisdictions for the exercise of the CMRA’s regulatory powers.

Below, we take a closer look at the cooperative system’s structure and governance framework.

Cooperative Capital Markets Regulator chart

Continue Reading...

US Treasury accepts Canadian guidance of investment entities under FATCA

Roanne C. Bratz and Michel Legendre -

Last week, Brett York, an attorney adviser in the Treasury Office of International Tax Counsel confirmed that the U.S. Treasury is willing to accept Canada's recent guidance that only Canadian financial institutions that are “listed financial institutions” for the purposes of Part XVIII of the Income Tax Act would be considered investment entities under the IGA. As we discussed earlier this year, the Canada Revenue Agency's guidance for Canadian entities took effect on July 1.

Under the wording of the IGA, the definition of “investment entity” is to be interpreted in a manner consistent with the definition of “financial institution” in the recommendations of Canada's Financial Action Task Force, with the result that  most personal investment companies and trusts will not  be considered  to be financial institutions required to report U.S.-owned accounts to the Internal Revenue Service under FATCA.

PEI joins cooperative capital markets regulatory system

The Canadian Department of Finance announced today that Prince Edward Island has become the fifth province to join the cooperative capital markets regulatory system now under development.

As we discussed last month, the federal government, Ontario, British Columbia, Saskatchewan and New Brunswick recently signed a Memorandum of Agreement setting out the terms and conditions of a cooperative regulatory system that the Finance Minister hopes to have operating by next year.

Under the proposed system, a common regulator referred to as the “Capital Markets Regulatory Authority” would administer uniform provincial legislation (that would be adopted in each participating provinces) as well as complimentary federal legislation focused on systemic risk. Drafts of both pieces of legislation were also published on September 8 with comments being accepted until November 7, 2014.

OSC proposes changes to participation fee calculations

The OSC yesterday published for comment proposed amendments to its rules that set out the fees to be paid by market participants. The proposed amendments involve changes to the calculation of participation fees, which apply to reporting issuers, registrants, certain unregistered capital market participants, specified regulated entities and designated rating organizations, and are meant to reflect a market participant’s use of the Ontario capital markets, as well as changes to certain activity fees, which are generally charged when a document of a designated class is filed, under OSC Rule 13-502 Fees and OSC Rule 13-503 (Commodity Futures Act) Fees.

Among other things, the amended rules would remove the use of reference fiscal years in the calculation of participation fees and require that market participants calculate their participation fee payable using information from their most recent financial year. According to the OSC, the change would achieve a "closer link" between a market participant's current financial performance and the level of participation fee payable. 

A number of new activity fees would also seek to improve fairness and consistency while better matching revenues to the OSC's costs. Proposed new activity fees would include $83,000 for an application for designation as a trade repository, $15,000 for an application for designation as a designated rating organization and an extension of the $4,500 take-over and issuer bid circular fee to information circulars filed in connection with such things as going private transactions, amalgamation and mergers. An additional fee of $2,500 would also apply for each technical report incorporated by reference in a prospectus. 

Continue Reading...

ASC to clarify how investment fund rules apply to MIE funds

In late August, the Alberta Securities Commission staff published a notice advising that they intend to ask the ASC to issue a designation order to clarify how rules applicable to investment funds apply to mortgage investment entities that are investment funds.

According to the staff notice:

Because an Operational MIE may be an investment fund under the Act but in circumstances, other than relating to the registration requirement, it is considered more appropriate that such MIEs be subject to the rules applicable to non-investment funds, ASC staff intend to request that the Commission issue a designation order designating Operational MIEs to not be non-redeemable investment funds.

The designation order is expected to provide that, except for the registration requirement, Operational MIEs are designated not to be a non-redeemable investment fund.

The designation order is expected to be published sometime next week. For more information, see ASC Staff Notice 81-701.

Russian sanctions expanded

The Canadian government announced expanded Russian sanctions yesterday, notably tightening the existing prohibition against providing loans to designated entities. The amendments to the sanctions also updated the schedules of designated persons and entities to whom the sanctions apply.

For an overview of Russia sanctions to date, see the website of Foreign Affairs, Trade and Development Canada.

Proposal for Canadian cooperative capital markets regulator released

The federal Department of Finance yesterday announced that the federal government, Ontario, British Columbia, Saskatchewan and New Brunswick have signed a Memorandum of Agreement setting out the terms and conditions of a Cooperative Capital Markets Regulatory System. As we discussed in July, the Finance Minister had recently stated that the new regulator could be in operation by next year.

Under the proposed cooperative system, participating provincial and territorial jurisdictions would enact uniform legislation addressing all matters in respect of the regulation of capital markets within their jurisdictions. Complementary federal legislation would address criminal matters and systemic risk in national capital markets and data collection. Meanwhile, a common regulator, the Capital Markets Regulatory Authority, would administer the provincial and federal legislation and regulations under authority delegated by the participating jurisdictions. 

A backgrounder setting out the key features of the cooperative system was also released, as were consultation drafts of the proposed federal Capital Markets Stability Act and the proposed provincial Capital Markets Act, as well as commentary on the governance and legislative framework. Comments are being accepted until November 7, 2014.

Emerging market issuers face prospectus scrutiny

Donald G. Belovich and Ryan Kirvan

In preparing and filing the preliminary prospectus, we have recently noticed that regulators are commonly responding with requests for further disclosure from issuers with mining properties in emerging markets. Often, the information requested is of the nature that you would expect should be included an annual information form (AIF) except that the nature of the information sought is not actually covered by the scope of required AIF disclosure.

As we’ve discussed in previous posts, regulators have in recent years increased the scrutiny over emerging market issuers. Specifically, the OSC undertook a targeted review of issuers with significant business operations in emerging markets in 2011 and released a notice outlining areas of concern in March 2012. Meanwhile, in November 2012, the OSC released a guide to assist boards and management of emerging market issuers in addressing the risks of doing business in emerging markets and satisfying their governance and disclosure obligations. The TSX and TSX-V also issued a consultation paper in December 2012 intended to identify the potential risks with listing emerging market issuers and to provide guidance to issuers with respect to applicable listing considerations. 

Continue Reading...

Thoughts on Finance Canada's recently issued consultation paper on bail-in capital

Peter E. Hamilton

Last month, Canada’s Department of Finance published a consultation paper outlining a proposed taxpayer protection and bank recapitalization (bail-in) regime. The implementation of such a regime is intended to avoid the “unacceptable costs to the economy” that would result were a domestic systematically important bank to fail. The proposed regime is thus intended to reduce the likelihood of failure and, in the unlikely event of such failure, ensure the restoration of a bank’s viability with minimal taxpayer exposure to loss.

Below are some of my thoughts on the proposal.

Continue Reading...

OSC releases 2014 annual report

The Ontario Securities Commission recently released its 2014 annual report, which provides an overview of the OSC's key accomplishments over the course of the last year in relation to its stated goals.

Among other things, the report notes that in the last year OSC staff initiated 14 investigations into fraud and other egregious types of misconduct through its Joint Serious Offences Team in partnerships with police agencies, as well as four quasi-criminal proceedings in the Ontario Court of Justice. 

Meanwhile, the report also states that the OSC will continue to review market structure issues and assess the need for regulatory action in respect of such things as the order protection rule, high frequency trading, mutual fund fee structures and whether to introduce a best interest standard for dealers and advisers.

Constitutional challenge of FATCA agreement launched

Roanne C. Bratz, Vince Imerti and Jonathan Willson

On August 11, a constitutional challenge to the Agreement between the Government of the United States and the Government of Canada to Improve International Tax Compliance through Enhanced Exchanges of Information that was signed on February 5, 2014 (referred to as the “ US-Canada IGA”) and the new Foreign Account Tax Compliance Act (FATCA) provisions contained in Part XVIII of the Income Tax Act (Canada) was filed in Federal Court in Vancouver, British Columbia.

The plaintiffs instituted the lawsuit in the hopes of stopping the Government of Canada from turning over private bank account information from more than one million “United States persons” and their families living in Canada to the Internal Revenue Service. In doing so, the plaintiffs argue, in part, that portions of the US-Canada IGA violate provisions of the Canadian Charter of Rights and Freedoms by distinguishing and prejudicing citizens and residents of Canada who are “United States persons” from those who are not.

Additional designated persons added to Russia and Ukraine sanctions lists

The Canadian government further expanded sanctions against Russia and Ukraine this week by adding persons and entities to the existing lists of designated persons to which sanctions apply. The sanctions were previously expanded late last month.

As we've previously stated, the sanctions prohibit Canadians and any person in Canada from, among other things (i) dealing in any property held by or on behalf of a designated person; (ii) providing any financial or other related service in respect of the property of a designated person; and (iii) providing any financial or related service to or for the benefit of a designated person. The sanctions also require that various financial entities, including securities dealers and advisers determine on a continuous basis whether they are in possession or control of property owned or controlled by or on behalf of a designated person.

OSC authority to conduct reviews broadened

Recent amendments to Ontario's Securities Act have broadened the OSC's authority to conduct compliance and continuous disclosure reviews.

Specifically, whereas the OSC could previously review the books and records that were required to be kept by market participants for the purpose of determining whether Ontario securities law were being complied with, the amended section 20, which came into force on July 24, now refers generally to the books, records and documents of a market participant. As such, the OSC presumably now has the authority to review any records, not just those that market participants are required to keep under applicable law. Further, a new provision provides that the OSC may review the records of an issuer relying on a prospectus exemption for the purpose of determining whether the issuer has complied with the exemption's conditions and restrictions.

Meanwhile, an amended s. 20.1 broadens both the types of documents that may be required in a continuous disclosure review, and the type of issuer to which the provision applies. Specifically, continuous disclosure reviews can now be conducted on any issuer, who may be required to deliver to the OSC any information and documents relevant to the review. Previously language referred simply to a requirement by reporting issuers and mutual funds to deliver information and documents relevant to the disclosures.

The OSC has not yet provided any guidance as to whether or how it will utilize the statute's broadened language.

Canada expands sanctions against Russia

The Canadian government expanded sanctions against designated Russian persons last week, including by adding additional designated persons to the previous list and adding two new schedules of designated persons who are considered to be controlled by persons engaged in activities that facilitate a violation of the sovereignty of Ukraine or a former or current senior official of the Russian government.

The regulations now prohibit, among other things, Canadians and persons in Canada from providing or dealing in new debt and equity financings with certain designated persons, or in respect of the property of such designated persons. For an overview of Russia sanctions to date, see the website of Foreign Affairs, Trade and Development Canada.

ASC proposes rule amendments related to derivatives regulation

Last week, the Alberta Securities Commission proposed amendments to various national instruments and certain Alberta Commission Rules intended to harmonize terminology with recently adopted (but not yet proclaimed into force) changes to the province's derivatives regulatory scheme under the Securities Act. The proposal would, for example, change references to "exchange contract" to the term "derivative".

As we've previously discussed, various provinces are currently in the process of adopting legislative changes to provide their securities regulators with the authority to regulate derivatives trading. Securities regulators have responded by developing regulatory proposals intended to utilize that authority while attempting to achieve a level of national harmonization.

The ASC is accepting comments on the proposals until August 23, 2014. The changes would come into force once the amendments to Alberta's Securities Act come into force.

New Brunswick and Saskatchewan join cooperative securities regulator initiative

The federal government’s most recent initiative to create a cooperative capital markets regulatory system for Canada took another step forward today with the announcement that New Brunswick and Saskatchewan had signed on to the existing agreement to join the Cooperative Capital Markets Regulatory System.

New Brunswick and Saskatchewan join Ontario and British Columbia as parties to an agreement in principle (the “Agreement”) which calls for the development of, among other things:

  1. uniform legislation for each participating province or territory that would address all capital markets regulatory matters under provincial or territorial jurisdiction;
  2. complementary federal legislation to apply across Canada that would address criminal matters and those relating to systemic risk and national data collection; and
  3. a single capital markets regulator comprising of an expert board of directors, a regulatory division and an adjudicative tribunal.

Under this model, it is proposed that the new cooperative regulator would administer a single set of regulations under the authority delegated to it by the participating jurisdictions, while being responsible for regulatory enforcement and adjudicative functions, as well as identifying and managing systemic risk. The common regulator is also contemplated to have a regulatory office in each participating jurisdiction that would provide the same range of services that are currently provided by provincial and territorial securities regulators while maintaining a single fee structure. 

Continue Reading...

CRA publishes FATCA guidance for Canadian entities

Roanne C. Bratz and Judith Charbonneau Kaplan -

The Canada Revenue Agency (CRA) on June 23, 2014 posted much anticipated guidance for Canadian entities that could find themselves subject to the Foreign Account Tax Compliance Act (FATCA), which took effect on July 1, 2014.

Entitled Guidance on enhanced financial accounts information reporting - Part XVIII of the Income Tax Act, the document, which consists of 158 pages divided into 12 chapters, was prepared with the stated purpose of helping financial institutions, their advisers, and CRA officials with the due diligence and reporting obligations relating to the Canada-United States Enhanced Tax Information Exchange Agreement, which was signed on February 5, 2014 (the “Guidance”).

According to the Guidance, “[a] Canadian financial institution that is in compliance with Part XVIII will not be subject to any U.S. withholding tax on U.S. source income and gross proceeds (both on its own investments and those held on behalf of its customers) under section 1471 of the U.S. Internal Revenue Code (IRC). However, the Agreement requires that procedures be followed by Canadian financial institutions seeking to secure that outcome.”

Of particular interest, it is noted that an entity must meet two conditions before it is considered to be a  “Canadian financial institution.” The entity must be a Canadian financial institution as defined under the IGA and it must be a “listed financial institution” for the purposes of Part XVIII of the Income Tax ActSubsection 263(1) of the Act defines a “listed financial institution” for that purpose and limits its meaning to 13 categories of entities. The Guidance explains that certain investment vehicles which, for example, may not be promoted to the public if they do not seek external capital (to illustrate, a personal trust used as a means for an individual or a family to hold investable assets), are not intended to be included in the term “listed financial institution” and will be viewed as passive Non-Financial Foreign Entities (or NFFE) under Canadian law.

The CRA has indicated that it is open to further comments and that the Guidance will be updated to take into account any developments, as appropriate.

OSC releases Statement of Priorities for 2014-2015

The Ontario Securities Commission today released its Statement of Priorities for the 2014-2015 financial year. The OSC notice also addresses stakeholder comments received in response to a draft version released earlier this year.

Ultimately, the OSC provides five broad regulatory goals for the upcoming year, namely (i) delivering strong investor protection, including by considering the best interest duty to investors, completing research in regards to embedded fees in mutual funds and publishing final rules to introduce pre-sale delivery of Fund Facts for mutual funds; (ii) delivering responsive regulation by, among other things, publishing proposals to update the order protection rule, developing proposals for streamlining the existing rights offering exemption, and moving forward on proposed rules regarding board gender diversity; (iii) delivering effective enforcement and compliance; (iv) supporting and promoting financial stability, including by developing rules for the clearing of OTC derivatives and implementing trade reporting rules, as well as by working with B.C., Ontario and the federal government to implement a cooperative securities regulator to deliver "more efficient and effective regulation of the capital markets" and oversee sources of systemic risk; and (v) running a modern, accountable and efficient organization.

For more information, see OSC Notice 11-770.

Non-Canadian business also impacted by new Canadian anti-spam rules in effect July 2014

As of July 1, 2014, businesses that engage in the sending of business messages to recipients in Canada will be subject to Canada’s Anti-Spam Law (CASL) which will generally prohibit the sending of a commercial electronic message without the prior explicit consent of the message recipient. CASL is expected to have a significant impact on the marketing practices of businesses operating in Canada and will apply equally to non-Canadian businesses, including dealers, advisers and fund managers that send commercial electronic messages into Canada. Penalties for non-compliance with CASL include fines of up to $1 million for individuals and up to $10 million for corporations and other business entities. A private civil right of action for damages is also available, although this right of action will not come into force until July 1, 2017.

CASL applies to a wide range of both electronic messages sent for a commercial purpose, including not only email messages, but also text messages, instant messaging and even some social media messages. More specifically, CASL applies to the sending of “commercial electronic messages” (CEMs) which are messages where it would be reasonable to conclude that one of the purposes of the message would be to encourage participation in a commercial activity, whether or not the activity is carried out in the expectation of profit. As a result, the law governs not only direct solicitations, but also a broad range of advertising, marketing and general promotional activity.

Continue Reading...

SEC Chair outlines work undertaken to address market instability and high frequency trading

Chair White
Photo Courtesy:
www.sec.gov
In a speech yesterday given at a New York conference, U.S. SEC Chair Mary Jo White set out a number of initiatives being undertaken by the SEC to address five broad areas of concern, namely market instability, high frequency trading, fragmentation, broker conflicts and the quality of markets for smaller companies.

To that end, she stated that she has directed SEC staff to prepare a number of rules and recommendations to address the issues outlined above. This includes, among other things: (i) developing an anti-disruptive trading rule; (ii) clarifying the status of unregistered active proprietary traders; (iii) eliminating an exception from FINRA membership requirements for dealers that trade in off-exchange venues; (iv) improving firms' risk management of trading algorithms; (v) expanding the information about ATS operations submitted to the SEC and making the information available to the public; (vi) enhancing order routing disclosure; and (vii) eliminating potential sources of conflicts between brokers and customers.

A Quebec tipping case serves to caution insiders

Maïté Murray and Vincent Laurin -

On April 7, 2014, the Bureau de décision et de révision (BDR) ruled on an application by the Autorité des marchés financiers (AMF) seeking an administrative penalty against a director of a reporting issuer for having allegedly contravened tipping restrictions under the Securities Act (Quebec). The AMF claimed that a general comment made by the director about the general status of the business of the reporting issuer to the effect that “things were going badly” should be considered as “privileged information” and could lead to a violation of tipping restrictions. (Tipping prohibitions under the securities acts of other Canadian jurisdictions refer to “material fact” and “material change” rather than “privileged information” but have the same purpose, namely ensuring that the investing public has equal access to information relating to reporting issuers.)

The comment in this case would have been made during an informal conversation between the director and a former CFO of the company, at a time when the company was faced with the prospect of having the relationship with its one and only client terminated prematurely. Shortly after this alleged conversation took place, the former CFO sold a significant amount of shares she held in the company.

Continue Reading...

IIROC releases 2013 report on exemptions granted

IIROC released its annual Exemption Report today, which provides a summary of the exemptions granted last year from certain UMIR and Dealer Member Rule provisions. Ultimately, 478 exemptions from IIROC requirements were granted in 2013, with most of the exemptions being granted from proficiency requirements.

Exemptions from proficiency requirements were granted in a range or circumstances, including in connection with registered representatives seeking to add portfolio management services to their IIROC registration and where the individuals had previously completed the relevant courses. Circumstances where off-marketplace trades were permitted included transfers of securities to accredited investors that were subject to a statutory resale restriction (hold period), principal take-on trades where the Participant was to undertake a distribution to its clients and to permit purchases pursuant to the private agreement exemption for exempt take-over bids.

For more information, see IIROC Notice 14-0128.

CSA publish guidance on implementing OBSI dispute resolution mechanism

The Canadian Securities Administrators today released guidance to assist registered dealers and advisers outside Quebec, which are now required to make the services of the Ombudsman for Banking Services and Investments (OBSI) available to clients. As we discussed last year, amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and its companion policy (collectively, the Amendments) now require that registered firms offer OBSI's services in order to satisfy their obligations to make independent dispute resolution or mediation services available to clients. Registered firms who are members of self-regulatory organizations will continue to be subject to their SRO's rules concerning complaint resolution.

Specifically, the guidance sets out the CSA's expectations in respect of preparing and delivering clear and meaningful client disclosure. Specific issues considered include when client disclosure is to be provided, when independent dispute resolution or mediation services need to be offered, and when relationship disclosure has to be updated. Sample client disclosure was also provided. Subject to necessary approvals in each participating jurisdiction, the Amendments come into force May 1, 2014 and provide for a transition period that will end on August 1, 2014. For more information, see CSA Notice 31-338.

IIROC report highlights enforcement activity for 2013

Earlier this week, the Investment Industry Regulatory Organization of Canada released its Enforcement Report for 2013, which covers IIROC's enforcement activities and key policy initiatives for last year.

According to IIROC, enforcement priorities in 2013 included focusing on the protection of seniors and vulnerable investors, unsuitable investment recommendations and firms' supervision of retail operations. In relation to the market activities, IIROC's enforcement focus was on the identification, investigation and prosecution of cases involving manipulative and deceptive trading (including such practices as wash trading, spoofing and layering).

Ultimately, IIROC conducted 200 investigations in 2013 across Canada. The regulatory violations most prosecuted against individuals related to due diligence, handling of client accounts and suitability. Inappropriate personal financial dealings, discretionary trading and off-book transactions also garnered a number of prosecutions. In the case of firms, prosecutions were most likely in relation to concerns over supervision and capital deficiencies. Sanctions against individuals and firms totaled almost $8 million.

In respect of policy initiatives and developments, the report highlights IIROC's project to consolidate its enforcement rules, its draft sanction guidelines, and its efforts to collect fines and cost awards, which include new legislative powers in Quebec to facilitate enforcement of IIROC's disciplinary decisions in the province and the authority to enforce cost orders in Ontario in light of a 2013 Superior Court decision. IIROC also states that it intends to begin publishing on its website a list of disciplined individuals who are delinquent in the payment of monetary sanctions.

Canada enacts sanctions related to Russia and Ukraine

The Government of Canada recently announced that it has imposed an asset freeze on certain designated persons related to Ukraine and Russia.

Specifically, the sanctions, enacted pursuant to the Special Economic Measures Act, prohibit Canadians and any person in Canada from, among other things (i) dealing in any property held by or on behalf of a designated person; (ii) providing any financial or other related service in respect of the property of a designated person; and (iii) providing any financial or related service to or for the benefit of a designated person. It is further prohibited for any person in Canada or Canadian outside Canada to do anything that causes, assists or promotes anything that is prohibited under the regulations.

The sanctions also require that various financial entities, including securities dealers and advisers determine on a continuous basis whether they are in possession or control of property owned or controlled by or on behalf of a designated person. Relevant disclosures must be made to the RCMP.

The sanctions add to the regulations enacted last month under the Freezing Assets of Corrupt Foreign Officials Act.

OSC releases draft statement of priorities for 2014-2015

The Ontario Securities Commission yesterday released for comment its draft statement of priorities for the financial year ending March 31, 2015.

The draft statement specifically identifies five regulatory goals for the following year, namely: (i) delivering strong investor protection, including by evaluating options in regards to the best interest duty and continuing the point of sale initiative for mutual funds; (ii) delivering responsive regulation, including by publishing proposals to update the order protection rule and continuing work on proposals to enact new capital raising prospectus exemptions; (iii) delivering effective enforcement and compliance oversight and efforts; (iv) supporting and promoting financial stability, including by working with CSA colleagues to create a harmonized and efficient OTC derivatives regime in Canada and continuing work on a cooperative securities regulator; and (v) running a modern, accountable and efficient organization, including identifying ways to reduce the regulatory burden and using electronic solutions when appropriate.

The OSC is accepting comments on its draft statement of priorities until June 1, 2014. For more information, see OSC Notice 11-769.

MFDA establishes whistleblower program

Earlier this year, the Mutual Fund Dealers Association of Canada (MFDA) announced the establishment of a whistleblower program to receive information from those with knowledge or evidence of potential wrongdoing by MFDA members or approved persons. According to the MFDA, the program will help it identify and respond to misconduct and reduce harm to the public.

Canadian regulators enter into MOU with CFTC

The OSC, AMF, ASC and BCSC announced this week that they have recently entered into a Memorandum of Understanding with the U.S. CFTC in regards to cooperation related to the supervision and oversight of entities that operate on a cross-border basis. The MOU is intended to enhance the consultation, cooperation and exchange of information between the parties.

OSC releases 2013 enforcement results

The Ontario Securities Commission today announced the results of its enforcement program for 2013. Over the course of the last calendar year, the OSC commenced 27 proceedings, including nine for fraud and six for illegal distributions. The OSC also concluded proceedings against 170 individuals and companies, with 95 being concluded through settlement agreements and 71 through hearings before the tribunal. Only four were the subject of court proceedings.

In terms of monetary sanctions, the OSC imposed administrative penalties and sanctions of just under $15 million in 2013, about $40 million in disgorgement and $3 million in costs , for a total of just over $58 million.

OSC to allow no-contest settlements

The Ontario Securities Commission announced yesterday that it is adopting a series of previously-proposed enforcement initiatives. The initiatives, discussed in an October 2011 post, include a new program for no-enforcement action agreements, the elimination of the explicit requirement for admissions in settlement agreements (thus allowing for no-contest settlements), a clarified process for self-reporting under the credit for cooperation program, and enhanced public disclosure by OSC Staff of credit granted for cooperation.

According to the OSC, the new tools will help the OSC resolve enforcement matters on a more timely basis. Further, the OSC stated that it is still considering the introduction of a whistleblower program. For more information, see OSC Staff Notice 15-702.

FINTRAC advises of prohibition against certain conduct with corrupt foreign officials from Ukraine

Last week, in connection with the bringing into force of the Freezing Assets of Corrupt Foreign Officials (Ukraine) Regulations on March 5, 2014 under the Freezing Assets of Corrupt Foreign Officials Act, FINTRAC issued an advisory note cautioning Canadians, both locally and abroad, of the prohibition against (i) dealing, directly or indirectly, in any property, wherever situated, of a listed politically exposed foreign person; (ii) entering into or facilitating, directly or indirectly, any financial transaction related to a dealing referred to in (i); and (iii) providing financial services or other related services in respect of any property of a listed politically exposed foreign person. A politically exposed foreign person is one that is named in the regulations under Schedule 1 and includes, among others, certain former Ukrainian officials.

Under the FACFOA generally, Canadians are required to advise the Commissioner of the RCMP if they are in possession or have control over property of any of the corrupt foreign officials listed in the regulation, as well as provide information in respect of any transaction or proposed transaction relating to such property.

For further details, see the March 7, 2014 FINTRAC Advisory.

CSA release enforcement report for 2013

The Canadian Securities Administrators recently released their 2013 Enforcement Report, which summarizes the enforcement actions taken by CSA members over the last year.

According to the report, about $35.4 million in fines and administrative penalties were ordered in 2013, and just under $55 million in restitution, compensation and disgorgement. The report breaks down enforcement cases into a number of categories, with a majority of orders resulting from illegal distributions and fraud. Highlights of specific cases are also provided in the report.

OSC invites applications for participation fee relief for certain small firms and issuers

The Ontario Securities Commission yesterday published a staff notice indicating that it would be open to providing participation fee relief, on an expedited basis, for certain small registered firms and reporting issuers.

Specifically, the relief would be available to registered firms and reporting issuers where: (i) the registered firm had specified Ontario revenues under $1 million, or the reporting issuer had a capitalization under $50 million; and (ii) the firm's or issuer's 2013 specified Ontario revenues or capitalization decreased by at least 50% from its specified Ontario revenues or capitalization in 2011. Registered firms and reporting issuers that meet such criteria are invited to apply for fee relief or a refund before March 31, 2014 using the expedited process set out in the notice. The OSC will consider a one-time 50% refund or reduction of the applicant’s participation fee, subject to payment of the minimum participation fee of $800 for registered firms and reporting issuers.

For more information, see OSC Staff Notice 13-704.

OSC publish review of activities and initiatives related to funds in 2013

The Ontario Securities Commission today published a staff notice summarizing key initiatives and activities impacting investment fund issuers and the fund industry.

Specifically, the notice reviews the status of a number of policy initiatives, including with respect to, among other things, the transition to IFRS, mutual fund fees, point of sale and risk classification methodology for Fund Facts, and the modernization of investment fund product regulation.

The OSC also identifies a number of emerging trends over the past year, including an increase in the number of prospectus offerings that proposed to invest substantially all their assets in a pool of mortgages as well as an increase in the use of derivatives to offer more efficient investment exposure to areas that are more difficult to reach through direct investments.

The staff notice also includes a discussion of findings emerging from OSC staff's review of prospectus and continuous disclosure, including in respect of risk ratings in Fund Facts and sales communications and advertising. With respect to the latter issue, OSC staff found that while funds were generally compliant with disclosure requirements related to sales communication, some communication did not contain all the information required.

For more information, see OSC Staff Notice 81-723.

Federal government, Ontario and B.C. move towards cooperative regulator

On January 31, the federal Department of Finance announced that B.C., Ontario and the federal government have made "substantial progress" towards drafting legislation and a memorandum of agreement in regards to the establishment of a single, cooperative securities regulator.

As we discussed in a post last year, the federal government and participating provinces first proposed a cooperative securities regulator in September. According to the latest announcement, the parties have set a target date of April 30, 2014 for the completion of draft provincial capital markets legislation, draft complementary federal legislation and a memorandum of agreement. Draft initial regulations and integration agreements are targeted for June 30 and August 29, 2014, respectively, with the parties ultimately hoping to have the proposed regulator in operation by July 1, 2015.

New requirements extend AML/ATF obligations to business relationships

As we discussed in November 2012, the Department of Finance initiated a consultation process in 2011 intended to address deficiencies in the customer due diligence provisions under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR). A final version of the amendments, which included clarifications made to the initial proposal, was published in early 2013 and came into force on February 1, 2014. The amendments to the PCMLTFR generally extend certain AML/ATF obligations to “business relationships”, add provisions in regards to ongoing monitoring, enhance the requirements in regards to collecting beneficial ownership information in regards to entities other than corporations, and require that “enhanced measures” be taken in certain high risk situations based on a risk assessment.

FINTRAC’s Guideline 4 Implementation of a Compliance Regime and Guideline 6 Record Keeping and Client Identification have also been updated effective February 1 to reflect the legislative amendments. Among other things, changes to the guidelines include guidance in respect of the documents that can be provided by clients to confirm beneficial ownership information, examples of enhanced measures that can be taken to mitigate the risk in cases of high-risk business relationships, guidance in respect of maintaining up-to-date client identification information and in determining whether a “business relationship” exists.

Canada and the U.S. sign FATCA agreement

Roanne C. BratzJudith Charbonneau Kaplan and Anne Ramsay -

On February 5, 2014, the Department of Finance announced that Canada and the United States have reached an agreement to address the application of the U.S. Foreign Account Tax Compliance Act (FATCA) in Canada. As described in a previous newsletter, FATCA targets American offshore tax evasion by requiring foreign financial institutions to disclose and report information in respect of their U.S. account holders. FATCA creates significant compliance issues for Canadian financial institutions.

Under the Canada-U.S. agreement, financial institutions will be required to provide relevant information on accounts held by U.S. residents and citizens to the CRA rather than to the IRS. This information will then be exchanged on an automatic, reciprocal, annual basis with the United States. Financial institutions are still subject to FATCA registration requirements and must register with the IRS through an online portal to obtain a Global Intermediary Identification Number. Canadian financial institutions compliant with the agreement will not be subject to the 30% FATCA withholding tax. Relief from compliance obligations is provided in respect of a number of registered accounts, including RRSPs, RRIFs and TFSAs. 

The Department of Finance also released draft implementation legislation, including amendments to the Income Tax Act.

European Commission proposes "Volcker Rule"-style regulation

Simon Romano and Laura Levine

Following the United States’ lead in implementing the Volcker Rule, on January 29, 2014, the European Commission proposed a Regulation of the European Parliament and of the Council on structural measures improving the resilience of EU credit institutions.

Generally speaking, the proposed regulation aims at enhancing financial stability in the EU by means of structural reform of large banks. More specifically, and subject to certain thresholds and exceptions, the proposed regulation prohibits credit institutions and entities within the same group from (a) engaging in “proprietary trading” in financial instruments and commodities, or, (b) with their own capital or borrowed money and for the sole purpose of making a profit for their own account, (i) acquiring or retaining, directly or indirectly, units or shares of alternative investment funds (AIFs) or (ii) investing, directly or indirectly, in derivatives, certificates, indices or any other financial instrument the performance of which is linked to shares or units of AIFs. The proposed regulation would apply to EU credit institutions and their EU parents, their subsidiaries and branches, including those in non-EU countries, and to branches and subsidiaries in the EU of banks established in third countries; however, foreign subsidiaries of EU banks and EU branches of foreign banks could be exempted from the prohibition if they are subject to a legal framework deemed to be equivalent to the proposed regulation.

Continue Reading...

OSC gains derivatives rule-making authority

As of December 31, 2013, certain derivatives-related amendments to the Ontario Securities Act (OSA) primarily relating to the rule-making authority of the Ontario Securities Commission have come into force.

Among other things, the OSC now has the authority to make rules in respect of prescribing registration requirements in respect of persons or companies trading in derivatives, prescribing classes of derivatives that are deemed to be securities for the purposes of prescribed provisions of the OSA, prescribing requirements for investment funds in respect of derivatives and prescribing requirements relating to derivatives, including disclosure and record keeping requirements.

As previously discussed, these amendments can be found in Ontario’s Bill 135, the Helping Ontario Families Managing Responsibility Act 2010, which received Royal Assent on December 8, 2010. Despite these recent amendments to the OSA, a number of amendments remain unproclaimed.

A look back at 2013

From the implementation of prospectus pre-marketing rules to a new "notice-and-access" framework for proxy materials, the past year has been a busy one for capital market regulators. And, 2014 is shaping up to be a busy one as well, with indications from regulators that we could soon see the release of proposals related to crowdfunding, proxy voting and gender diversity. Further, the federal government, along with Ontario and B.C. continue to work towards the creation of a cooperative securities regulator.

In case you missed them the first time around, we've compiled some of our most popular and substantive posts from the last 12 months, below.

M&A

Continue Reading...

Supreme Court uses reasonableness standard to review BCSC order

Maïté Murray -

On December 5, the Supreme Court of Canada released its decision in McLean v. British Columbia (Securities Commission), a case in which the Court found that a standard of reasonableness applied to its review of a BCSC decision in respect of the limitation period applicable to secondary proceedings under the Securities Act (British Columbia).

In September 2008, the appellant McLean entered into a settlement agreement with the OSC in regards to claims of misconduct that allegedly occurred between March 1996 and June 2001. The settlement agreement and the corresponding agreed-upon order issued by the OSC generally barred her from trading in securities for a period of five years and from acting as an officer or director of certain registered entities for a period of ten years.

Continue Reading...

CSA implementing OBSI dispute resolution mechanism

The CSA yesterday announced the adoption of amendments to NI 31-103 that will require registered dealers and advisers outside Quebec to make the services of the Ombudsman for Banking Services and Investments (OBSI) available to clients to satisfy their obligations to offer independent dispute resolution or mediation services. The AMF already provides a mediation service to clients of all registered dealers and registered advisers.

As we discussed in a post last year, the CSA released proposed dispute resolution requirements in November 2012, and the final amendments include non-material changes made in response to comments received. The amendments are expected to come into effect on May 1, 2014, with a transition period extending to August 1, 2014.

Further issues to consider from IIROC's compliance report

IIROC recently released its annual compliance report, which we discussed last week, highlighting the results of recent compliance reviews and setting out key priorities for the next year.

Below is a more detailed discussion highlighting certain aspects of that report.

Social Media

According to IIROC, dealers are expected to have robust policies and procedures for communicating with clients and the public through advertisements and sales literature, including through social media. According to the compliance report, IIROC intends to review dealers' social media policies and procedures over the course of the next year, with the results contributing to the development of policy in this area.

Continue Reading...

Industry Canada launches CBCA consultation

Industry Canada recently announced the launch of a public consultation process to consider potential amendments to the Canada Business Corporations Act (CBCA). The CBCA governs federally incorporated companies, and according to Industry Canada, is the governing corporate law for almost half of Canada’s largest public companies.   While many of its counterpart provincial corporate laws have recently undergone a modernization process, comprehensive amendments to the CBCA were last made in 2001 and certain changes have been long-awaited.

This consultation process follows a statutory review conducted by a House of Commons Standing Committee in 2009-2010. Citing the need to maintain a modern corporate regulatory structure reflective of marketplace changes and developments, the consultation papers asks for input on a wide range of issues, including those that could result in significant changes to shareholder rights and board accountability (such as proxy access and shareholder approval of dilutive transactions), as well as those that represent and reflect some of the latest developments in corporate governance (such as corporate social responsibility and board diversity). While having a direct impact on federally-incorporated companies if adopted, certain changes would also have the potential to set a trend for corporations in Canada generally.

Continue Reading...

Quebec's AMF adjusts fees for 2014

Quebec's Autorité des marchés financiers (AMF) has announced that certain fees pursuant to laws it administers will be increasing as of January 1, 2014.

Fees being increased include those found in Title VI, Chapter II of the Securities Regulation and the fees payable under the regulation Tariffs for costs and fees payable in respect of derivatives, which will be increased by 0.97%. Certain other fees, including those payable under the Regulation respecting fees and contributions payable under An Act respecting the distribution of financial products and services will increase by 1.1%.

Continue Reading...

IIROC's annual compliance report identifies dealers' common deficiencies

Earlier this week, the Investment Industry Regulatory Organization of Canada released its Annual Consolidated Compliance Report for 2013/2014. The report, which sets out the results of recent targeted reviews and describes IIROC's key priorities for the next fiscal year, is intended to assist dealers in satisfying compliance obligations.

Specifically, the report identifies IIROC's three key areas of compliance focus over the next year, namely (i) financial and operational compliance, including with respect to balance sheet leverage and repo book financing risk management practices, outsourcing of regulatory functions (with IIROC stating that guidance on the subject would be issued by year end), and maintenance of books and records on accounting systems physically located on servers outside a dealer's control;  (ii) surveillance and trading conduct compliance, including in respect of unreasonable or clearly erroneous trades, electronic trading rule requirements, best execution practices and cyber-crime; and (iii) business conduct compliance , including in respect of the implementation of client relationship model provisions, personal financial dealings with clients and outside business activities, and policies and procedures for communicating through social media.

Meanwhile, the report highlights the results of IIROC's targeted compliance reviews. With respect to non-arm's length investment products, IIROC found that a majority of dealers reviewed had appropriate controls in respect of suitability obligations and accredited investor determination in the sale of non-arm's length products. However, issues were identified with respect to conflict of interest disclosure and product due diligence. The report also identifies areas of concern with respect to dealers' best execution practices, books and records, margin requirements for dealers engaged in underwriting, internal controls, safekeeping and custody of customer and firm assets, policies and procedures for supervision of business and trading conduct, manipulative and deceptive trading practices, client compliant handling and various registration related deficiencies.

For more information, see IIROC Notice 13-0296.

OSC and CPAB sign cooperation agreement

The OSC announced yesterday that it has entered into a Memorandum of Understanding with the Canadian Public Accountability Board focused on consultation, cooperation and information exchange between the parties. According to the OSC, the exchange of information facilitated by the MOU will support collaboration on review and oversight matters.

IIROC republishes proposals to consolidate enforcement rules

The Investment Industry Regulatory Organization of Canada today republished revised proposed rules to consolidate certain enforcement and related rules found in the UMIR and Dealer Member Rules. As we published last year, IIROC first released a draft set of rules in March 2012, and the proposed version released today addresses comments from stakeholders to the initial proposals and input from the Canadian Securities Administrators, including in regards to the confidentiality of investigations, standards of conduct and sanctions.

Comments are being accepted by IIROC until February 12, 2014. For more information, see IIROC Notice 13-0275.

Federal government, Ontario and B.C. propose cooperative securities regulator

Federal Minister of Finance Jim Flaherty, along with his counterparts in Ontario and British Columbia, today proposed the establishment of a single, cooperative securities regulator to administer a single set of regulations designed to protect investors, support efficient capital markets and manage systemic risk in the participating jurisdictions. The regulator, with an executive head office in Toronto and a nationally integrated executive management team, would be directed by a board of independent directors and overseen by a Council of Ministers of all participating jurisdictions. All other provinces and territories are also being invited to participate in the proposed system.

Under the proposed plan, among other things: (i) a uniform Act would be adopted by each participating jurisdiction; (ii) the regulator would administer a single set of regulations; (iii) a federal Act would address criminal matters and issues relating to system risk; (iv) the regulator would administer the provincial and federal Acts; (v) regulatory offices would be located in each participating province; and (vi) a single fee structure would be designed to allow the self-funding of the regulator.

According to the release, in pooling provincial and federal expertise, the regulator would "contribute to a stronger economy, improve investor protection and better respond to increasingly competitive, dynamic and global capital markets."

For more information, see the proposal's Agreed Elements and Agreement in Principle.

IIROC Annual Report highlights regulatory progress

The Investment Industry Regulatory Organization of Canada yesterday released its 2012-2013 annual report, which outlines the progress made by IIROC over the past year to protect investors, promote compliance and effective risk management, and foster fair, efficient and competitive capital markets.

IIROC's accomplishments over the past year include new electronic trading rules, the publication of guidance on deceptive trading practices and publication of a proposed framework for enhanced oversight of the Canadian debt market. On the enforcement front, IIROC held 58 disciplinary hearings over the past year, issued 26 suspensions and 7 terminations. This compares to 73 disciplinary hearings, 29 suspensions and 9 bans the previous year. In addition to regulating registered firms and individuals, IIROC also regulates trading on four stock exchanges and seven equity alternative trading systems (ATSs).

New marketing rules for prospectus offerings receive Ministerial approval

The OSC announced today that the Minister of Finance has approved final amendments to National Instrument 41-101 General Prospectus Requirements and National Instrument 44-101 Short Form Prospectus Distributions . As we previously discussed, these amendments 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. These activities include the use of “standard term sheets,” and “marketing materials” as well as requirements relating to the conduct of road shows. These amendments were originally published in final form on May 30, 2013 and come into force on August 13, 2013.

Canadian regulators sign MOUs with European Regulators under AIFMD

Alix d'Anglejan-Chatillon -

Following our recent post, the Ontario Securities Commission, the Autorité des marchés financiers, the Alberta Securities Commission and British Columbia Securities Commission announced earlier today that they have entered into supervisory Memoranda of Understanding (MOUs) with financial regulators of a number of European Union (EU) and European Economic Area (EEA) member states for the supervision of alternative investment fund managers as required under the EU Alternative Investment Fund Managers Directive (AIFMD).  The AIFMD entered into force on July 22.

The AIFMD will directly impact both Canadian managers which manage funds in the EU and Canadian funds marketed in the EU by Canadian or EU-based fund managers.  Significantly, the AIFM Directive effectively regulates a much broader array of fund structures than conventional alternative investment funds and covers hedge funds, private equity funds, venture capital funds, real estate funds, commodity funds, investment trusts and other collective investment vehicles.   As a result, managers of funds that are not regulated as “investment funds” under Canadian securities laws may be subject to the application of AIFMD in connection with their European activities.

Continue Reading...

OSC identifies issues in calculation of firms' participation fees

The Ontario Securities Commission today released the results of a report conducted by its Compliance and Registration Regulation Branch in respect of the annual capital markets participation fees paid by registrant firms and unregistered capital markets participants. The report specifically sought to assess the accuracy and completeness of participation fees submitted for 2012 and identify common calculating errors. The report also provides firms with guidance on addressing these common errors. For more information, see OSC Staff Notice 33-741.

OSC, ASC and BCSC ink supervisory MOU deals with Bank of England and FCA

The OSC today announced that it had, along with the ASC and BCSC, entered into Memoranda of Understanding with the Bank of England and the U.K. Financial Conduct Authority regarding mutual assistance in the supervision and oversight of regulated entities that operate in both the U.K. and the participating Canadian jurisdictions. The MOUs are subject to Ministerial approvals.

Canada steps up its fight against foreign corruption

As our colleagues discussed in an earlier post on The Competitor, the federal government recently introduced amendments to the Corruption of Foreign Public Officials Act (CFPOA) to strengthen the government’s ability to investigate and prosecute Canadians and Canadian businesses that attempt to gain a business advantage through bribery. On June 19, the amendments were granted Royal Assent.

The CFPOA prohibits giving or offering to give any type of benefit to a foreign public official, or any other person, for the benefit of the foreign public official, where the ultimate purpose is to obtain or retain a business advantage. Since the 2008 creation of the RCMP’s International Anti-Corruption Unit, the government has increased enforcement and pursued several high profile corruption cases. Going forward, the government has signalled that it will increase its efforts to combat international corruption.

As we previously discussed, the amendments ultimately make several significant changes to the CFPOA, including entrenching the nationality principle as the basis of jurisdiction for offences, broadening the definition of “business” to which the CFPOA applies, creating a books and records offence and increasing the maximum term of imprisonment.

The changes are in force but for the amendment repealing the CFPOA provisions regarding the facilitation of payments, which will come into force on a date fixed by the government.

OSC's upcoming priorities include shareholder democracy and access to capital

The Ontario Securities Commission yesterday released its statement of priorities for the fiscal year ending March 31, 2014. The statement follows the OSC's publication of a draft in April, and takes into account stakeholder comments received in response to the draft.

Of note, among the priorities listed for the upcoming year, will be a focus on improving shareholder democracy by facilitating the adoption of majority voting by TSX-listed issuers and publishing a consultation paper on key proxy voting infrastructure issues. The TSX announced in October 2012 that it intends to impose majority voting on all of its listed issuers as of December 31st of this year. The OSC states in its statement that it is supportive of the TSX’s initiative and that numerous commentators encouraged the OSC to continue to review shareholder democracy issues as outlined in 2011 in OSC Staff Notice 54-701. With respect to proxy voting infrastructure, the CSA plan to publish a concept paper this summer to outline and seek feedback on key issues.

Other priorities include a focus on disclosure, mainly through cost disclosure and performance reporting by advisers and dealers, delivery of fund facts in the place of a mutual fund prospectus and developing a summary disclosure document for exchange-traded funds or ETFs.

The OSC will also continue its study of a best interest duty on dealers and advisers and its discussion of mutual fund fees and fees for other investment products. Capital market structure and capital raising will be on the agenda as well, with the aim of completing stakeholder consultations on last year's prospectus exemption consultation paper and looking at options to expand access to capital for Ontario issuers, including an examination of Canada's capital market structure and the impact of the order protection rule, electronic trading and market data fees. Finally, as has been the focus for the last few years, in accordance with its G20 commitments, the OSC will also continue working with other CSA members towards implementation of an OTC derivatives regime, including with respect to clearing and trade reporting.

Securities Act amendments to tighten up insider trading provisions now in force

Ontario's recently passed budget bill contains amendments to the Securities Act to tighten up provisions respecting insider trading. As we discussed in an earlier post, the amendments change the definition of "person or company in a special relationship with the reporting issuer" in respect of those to whom the insider trading restrictions apply. Specifically, the definition has been expanded to include not only persons and companies associated with those proposing to make a take-over bid of a reporting issuer, but also those associated with a party considering or evaluating whether to make a take-over bid. Similar changes to the wording respecting those considering or evaluating whether to engage in business or professional activities were also made.

The budget bill also adds a new provision to the Commodity Futures Act to prohibit attempts at fraud and market manipulation.

The amendments came into force on June 21.

OSC granted approval for agreements governing SEDAR and other National Systems

The OSC announced today that it has received Ministerial approval for certain agreements among it, the BCSC, ASC and AMF with respect to the outsourcing and management of, and ownership and licensing of intellectual property comprising, certain nationally shared information technology systems, including SEDAR, SEDI and the NRD.

Also approved was an agreement among these parties governing the administration and application of surplus funds generated by the operation of these national systems, as well as a similar agreement relating only to the NRD with IIROC.

IIROC adopts new rule to clarify prohibition on personal financial dealings with clients and conduct of outside business activities

IIROC announced yesterday that it is adopting a new rule to clarify that approved persons and dealers are generally prohibited from engaging in personal financial dealings with clients. IIROC is also codifying its previous position regarding the need for registered representatives and investment representatives to disclose to, and seek approval from, their dealers in order to engage in outside business activities. Guidance on outside business interests was also published. IIROC first proposed the amendments in May 2010. Draft guidance on outside business activities, meanwhile, was first published in May 2011.

The rule amendments take force on December 13, 2013. For more information, see IIROC Rules Notices 13-0162 and 13-1063.

OSC provides clarification of no-contest settlement proposal

As we discussed in October 2011, the Ontario Securities Commission is currently considering a number of enforcement initiatives, including a "no-contest" settlement program. In response to public comments received, the OSC yesterday provided a clarification on the limited circumstances under which a such a settlement agreement would be considered.

Specifically, the OSC stated that no-contest settlements would not be available to those that had engaged in egregious, fraudulent or criminal conduct, or where the misconduct resulted in unaddressed investor harm. Further, in proposing a no-contest settlement, OSC would have to assess a number of factors in determining a respondent's eligibility, including the extent of the respondent's cooperation with staff's investigation, the degree and timeliness of self-reporting, the remedial steps taken by the respondent and whether disgorgement had occurred. Finally, the OSC is now proposing that no-contest settlement eligibility not be prohibited by the fact that a respondent may have previously been the subject of enforcement activity.

The OSC also released a research paper commissioned to consider recent U.S. developments on the topic and the implications for the OSC. The OSC will be providing submissions in support of the no-contest settlement initiative, as well as the other three enforcement initiatives proposed in 2011, at the roundtable scheduled for June 17.

For more information, see OSC Staff Notice 15-706.

IIROC releases 2012 report on exemptions granted

Earlier this week, Investment Industry Regulatory Organization of Canada released its second annual Exemption Report, which provides an overview of exemptions granted last year by IIROC from certain UMIR and Dealer Member Rule provisions. Ultimately, Market Regulation Policy staff, the IIROC Board of Directors or IIROC staff granted 257 exemptions, including 62 granted in response to a request by Participant to act as principal or agent in respect of an off-marketplace trade and 157 from proficiency requirements.

Circumstances where off-marketplace trades were permitted included transfers of securities to accredited investors that were subject to a statutory resale restriction (hold period), principal take-on trades where the Participant was to undertake a distribution to its clients and to permit purchases pursuant to the private agreement exemption for exempt take-over bids. Exemptions from proficiency requirements were granted in a range or circumstances, including to accept alternative work experiences.  IIROC staff also granted 26 exemptions with respect to “bulk transfers” of client accounts.

IIROC's first exemption report was issued in May 2012. For more information, see IIROC Notice 13-0149.

OSC identifies compliance issues in KYC and suitability reviews

Last week, the Ontario Securities Commission Compliance and Registrant Regulation Branch released the results of its targeted compliance review of portfolio managers and exempt market dealers. Specifically, the review sought to assess compliance with know-your-client, know-your-product and suitability obligations found in NI 31-103.

With respect to EMDs, the review ultimately found a number of substantive issues deemed unacceptable by Branch staff. Issues identified by staff included (i) sales of securities to investors that did not qualify as accredited investors; (ii) inadequate suitability assessments (including due to concentration risk); (iii) misuses of client-directed trade instructions; (iv) in appropriate disclaimer language in client documentation; (v) improper delegation of KYC and suitability obligations to third parties; (vi) inadequate relationship disclosure information; and (vii) lacking or inadequate policies and procedures.

With respect to portfolio managers, staff found general compliance with obligations. Issues identified, however, included (i) inadequate suitability assessments; (ii) inadequate relationship disclosure information; (iii) inadequate process on collection, documentation and maintenance of KYC information; and (iv) inadequate policies and procedures.

Ultimately, approximately 62% of registrants reviewed were issued deficiency reports, with more than 30% of the deficiencies characterized as significant. The Branch intends to issue guidance to registrants in the next few months to provide best practices regarding KYC, KYP and suitability. The guidance is also expected to identify examples of unacceptable practices as well.

For more information, see OSC Staff Notice 33-740.

Budget bill would prohibit attempts to engage in fraudulent conduct under commodities legislation

As we discussed in a recent post, Ontario's recently-proposed budget bill would amend the Securities Act to tighten up provisions respecting insider trading.  In respect of commodities, section 59.1 of the Commodity Futures Act currently prohibits persons and companies from engaging in conduct that the person or company knows or reasonably ought to know (i) results in or contributes to a misleading appearance of trading activity in, or an artificial price for, a commodity or contract; or (ii) perpetrates a fraud on any person or company.

Under the budget bill, a provision would be added to the section to also prohibit attempts to engage in such conduct. The bill is currently being considered by the Ontario legislature.

OSC to hold hearings on proposed enforcement initiatives

The Ontario Securities Commission announced yesterday that it will hold a policy hearing on June 17 to hear submissions from interested parties who submitted responses in response to its 2011 proposed enforcement initiatives. As we discussed in an October 2011 post, the OSC had proposed a number of measures, including no-enforcement action agreements and a no-contest settlement program. For more information on the OSC's 2011 proposals, see OSC Staff Notice 15-704.

Ontario budget hints at changes to securities legislation

The Ontario budget, released yesterday, contains some hints at upcoming changes to the Securities Act planned by the provincial government.

Specifically, according to the budget document, the government plans to propose legislative amendments to expand and clarify insider trading provisions, add new offences for attempted market manipulation and attempted fraud, update the early-warning reporting requirements to provide more transparency and, following consultations with the Ontario Securities Commission, if needed following current cases, suspend the operation of the secondary market civil liability limitation period while leave to proceed is being sought. Theresa Tedesco has more on the planned changes to the OSC’s regulatory authority in today’s Financial Post.

OSC releases draft statement of priorities for 2013-2014

The Ontario Securities Commission today released its draft statement of priorities for the upcoming year, which sets out the actions the OSC intends to take during fiscal 2013-2014.

Key OSC priorities include: (i) expanding outreach to the investor community; (ii) publishing an initial assessment of the application of the best interest standard for advisers and dealers; (iii) providing investors with more effective and meaningful disclosure through publication of a rule requiring advisers and dealers to provide cost disclosure and performance reporting in client statements, as well as publication of final proposals for delivery of Fund Facts; (iv) advancing the discussion on mutual fund fees and fees for other investment products; (v) considering the regulatory issues posed by new capital-raising strategies such as crowdfunding; (vi) examining issues associated with the evolution of markets, including electronic trading and the impact of the order protection rule; (vii) intensifying the enforcement program and targeting the most serious harm; and (viii) developing rules for an OTC derivatives regulatory framework, including for clearing and trade reporting.

The OSC is accepting comments on its draft statement until June 3, 2013. For more information, see OSC Notice 11-768.

OSC proposes guidelines to clarify when it may issue orders that could be viewed as prohibited blanket orders

The Ontario Securities Commission today requested comments on proposed guidelines regarding the OSC's interpretation and application of the prohibition in the Ontario Securities Act that restricts it from making orders of general application.

The OSC notes in its request for comments that there is, at times, a need to respond to developments on a timely basis and that the OSC is challenged in responding to applications for relief that would constitute “blanket orders” if granted. While s. 143.11 of the Securities Act prohibits the OSC from making orders or rulings of general application, none of its counterpart regulators are subject to a similar restriction. For example, in September 2011, all of other members of the Canadian Securities Administrators issued blanket orders under CSA Staff Notice 31-329 to provide interim relief on account of certain unintended consequences of changes to registration rules, while OSC staff were able to confirm only that they would “not enforce” the newly enacted restrictions.

The purpose of the guidelines is to set out the factors the OSC will consider in determining whether an order sought constitutes a prohibited blanket order and to assist applicants in proposing appropriate parameters around the scope of relief that is requested. The factors proposed by the OSC include (i) the scope of the proposed order, including the number of applicants or transactions to which the order applies; (ii) the proposed order's impact and whether the exemption would have significant policy implications for capital markets; and (iii) the permanence of the order. With respect to the second factor, an order would be less likely to be characterized as a prohibited blanket order if it is intended to provide relief from a technical or procedural requirement or an unintended consequence, facilitate the transition to a new or amended rule, address an “outside” event or change, or provide relief from the impact of an error or outdated rule.

In completing its analysis, the OSC would also consider whether its response would be better served through the public rule-making process.

The OSC is accepting comments on its proposed guidance until June 5, 2013. For more information, see proposed OSC Policy 11-602.

IIROC releases inaugural enforcement report

The Investment Industry Regulatory Organization of Canada (IIROC) recently released its inaugural enforcement report for 2012. According to the report, which provides a summary of IIROC's enforcement actions between 2009 and 2012, IIROC initiated 256 investigations and 129 prosecutions during 2012, with assessed fines and fees totaling over $12 million. The most common regulatory violation prosecuted by IIROC with respect to individuals concerned issues related to due diligence, handing of client accounts, or suitability. Meanwhile, prosecutions against firms were most commonly a result of issues concerning supervision. The report also provides summaries of the most significant cases IIROC has prosecuted in the last few years.

UK implements "twin peaks" model of financial regulation

On April 1, the U.K. moved to a "twin peaks" model of financial regulation that saw the Financial Services Authority cease to exist and its work split between two new regulatory authorities. Specifically, the Prudential Regulation Authority, part of the Bank of England, has been tasked with the prudential regulation of deposit-takers such as banks and credit unions, as well as insurers and major investment firms. Meanwhile, the Financial Conduct Authority will now regulate the conduct of financial services firms "to ensure that business across financial services and markets is conducted in a way that advances the interests of all users and participants."

As we've discussed previously, the implementation of the new regulatory regime follows a process initiated in 2010, when Lord Adair Turner, Chairman of the FSA , discussed a "major shift in philosophy" towards a "more pre-emptive and intrusive approach to supervision".

Federal budget sets out plan for national securities regulator

Last week saw the release of the federal budget by the Minister of Finance. (For some trenchant analysis of its highlights, see this piece by our tax colleagues). Found within its 442 pages is an outline of the federal government's plan to move forward with a national securities regulator.

Specifically, the budget states that while the government's preferred approach is to reach an agreement with the provinces on a common securities regulator, if a timely agreement cannot be reached, the government will propose legislation consistent with the Supreme Court's decision on the matter. Such legislation would include "the capacity to monitor, prevent and respond to systemic risks emerging from capital markets."

Survey of Ontario investors finds broad support for best interest duty

Earlier this week, the Ontario Securities Commission's Investor Advisory Panel released the findings of a study conducted to gauge the views of investors regarding their relationships with financial advisers. Of particular interest, the study ultimately found that while investors generally trust their financial advisers, 93% support a best interest duty. Meanwhile, the study also found support for strengthening the regulation of financial advisers and stricter enforcement of the rules.

As we discussed in October, the CSA released a consultation paper last year exploring the concept of a fiduciary duty for advisers and dealers.

OSC releases 2012 enforcement report

On February 28, the Ontario Securities Commission released a report outlining its enforcement activity for 2012. According to the report, a total of 30 proceedings were initiated in 2012, with 15 of those including allegations of fraud. Meanwhile, proceedings were concluded against 63 individuals and 37 companies, with a majority of matters concluded at a contested hearing before a tribunal. Sanctions for the year totaled more than $78 million. As we discussed last week, the CSA also recently released an enforcement report highlighting the activities of CSA members over the last few years.

CSA release enforcement report for 2012

The Canadian Securities Administrators yesterday released its 2012 Enforcement Report, which summarizes the enforcement activities of CSA members over the last few years. Highlights of the report include data regarding proceedings commenced in respect of a number of categories. For example, proceedings for insider trading dropped from nine in 2011 to four in 2012, while proceedings for illegal distributions dropped from 77 to 53.

The report further breaks down enforcement cases into six categories, including for the first time "fraud" in its own category. These are described in the report as follows:

Continue Reading...

Standard interpretation of OSA applied: secondary market purchasers have no cause of action for misrepresentation in a prospectus

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.

Continue Reading...

Canada sharpens its teeth to take a bite out of bribery

Susan Hutton -

On February 5, 2013 the federal government tabled amendments to the Corruption of Foreign Public Officials Act (CFPOA) which, if passed, would give Canada a much broader reach and pose a more serious threat to Canadians and Canadian businesses who attempt to gain a business advantage through bribery. These amendments are evidence of the Government’s tougher approach to enforcement of the CFPOA in recent years, as witnessed already by prosecutions of Niko Resources in 2011 and more recently of Griffiths Energy, both of which pled guilty to offences under the Act (see below for more details).  In some ways, the CFPOA will now be tougher than its US counterpart.

Generally speaking, the CFPOA prohibits giving or offering to give a benefit of any kind to a foreign public official, or any other person for the benefit of the foreign public official, where the ultimate purpose is to obtain or retain a business advantage.

Continue Reading...

CSA provide guidance for advising representative applicants

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.

Quebec's Complaint Reporting System - Reminder of semi-annual filings for registrants in Quebec

Firms registered or otherwise licensed by the AMF in Québec, including as securities dealers or advisers, must file their semi-annual report of client complaints on the AMF’s Complaint Reporting System (CRS) by January 30, covering the period of July 1 to December 31, 2012.

These semi-annual filings must be completed electronically on the AMF’s CRS. For information on obtaining a CRS user code to access the system and other information on applicable requirements governing the fair and equitable handling of complaints under the Quebec rules, please refer to the CRS link above.

OSC publishes final amendments to fee rule

Last month, the Ontario Securities Commission published final amendments to OSC Rule 13-502 Fees and its companion policy that will see an increase to the current fees payable by market participants. As we described in August 2012, the OSC published proposed amendments to its fee structure last year.

While the final version of the amendments is generally consistent with the earlier proposal, the OSC has taken steps to address some of the concerns communicated during the public comment process. For example, while the original proposals contained increases in participation fees over a three-year fee cycle of 7.9% per year for registrants and 15.5% for issuers, the increases have been reduced to 4.7% and 11.65% per year, respectively.

Of note, the OSC has exempted unregistered investment fund managers that do not have a place of business in Ontario from the requirement to calculate and pay capital market participation fees where the investment fund manager does not have security holders resident in Ontario or where there has been no active solicitation of investors in Ontario after September 27, 2012. However, while many commentators expressed opposition to the OSC’s proposed change to the calculation of fees based on a “reference fiscal year”, which for many market participants will result in the fees payable over the next three years to be based on historical market capitalization or revenue data rather than current data, the OSC, citing the need for predictability in its fee revenues, proceeded with this change.

Assuming Ministerial approval, the amendments to both rules will come into force on April 1, 2013.

IIROC releases annual compliance report for 2012

The Investment Industry Regulatory Organization of Canada last month released its annual compliance report for 2012. The report, intended to help dealers comply with regulatory expectations, outlines common deficiencies found in IIROC staff's compliance examinations in the last year, and also sets out IIROC's examination priorities for the current fiscal year.

Specifically, the report outlines a number of deficiencies identified pursuant to IIROC's targeted compliance reviews and surveys. Highlighted issues include (i) non-compliance with aspects of IIROC rules regarding the handling of client complaints; (ii) inadequate internal controls; (iii) deficiencies regarding books and records, including with respect to control and access over customer records on brokerage accounting systems located on affiliates' computer servers and failures to capture and record off-book transactions; (iv) deficiencies in respect of related party transactions, including failures to execute written cost or service-sharing agreements that identify services provided and method of fee calculation; (v) deficiencies regarding policies and procedures for identifying and managing conflicts of interest; (vi) inadequate policies and procedures regarding due diligence; (vii) malfunctions or programming errors related to automated trading systems causing market disruptions; (viii) failures in providing timely responses to trade inquiries, particularly in relation to clients with direct market access; and (ix) inadequate controls over primary distribution of debt. 

Meanwhile, for 2012-2013, the report states that IIROC staff intend to focus on issues such as non-arm's length investment products, know-your-client documentation, order-execution only services, capital and liquidity risk management, outsourcing, IFRS, electronic trading controls and extended failed trades reporting.

For more information, see IIROC Notice 12-0359.

IIROC updates expectations regarding compliance and supervision

The Investment Industry Regulatory Organization of Canada (IIROC) released a notice earlier this week setting out its expectations with respect to the compliance function at member firms, as well as the roles and responsibilities of firms, boards, management, compliance departments and compliance officers. The notice updates a previous notice issued in 2006 and is intended to ensure consistency between the expectations of IIROC and registration reform related amendments that include new registration categories, changes to the scope of registerable activities and updates on compliance related functions.

Ultimately, the notice covers such issues as (i) the responsibility for compliance; (ii) the distinction between supervisory and compliance roles; (iii) the roles of the dealer, board, management and compliance officer; (iv) when individuals may be subject to enforcement action; and (v) creating an effective compliance program. A number of "tips" are also provided for compliance officers to ensure that expectations are met.

A draft version of the notice was initially published for comment in December 2011. IIROC's summary of comments and responses were also published this week.

For more information, see IIROC Notices 12-0379 and 12-0380.

Quebec's AMF adjusts fees for 2013

Last week, Quebec's Autorité des marchés financiers (AMF) announced that certain annual and other fees pursuant to laws it administers will be increasing as of January 1, 2013. Fees being increased include those payable under An Act respecting the distribution of financial products and services, the fees found in Title VI, Chapter II of the Securities Act and the fees payable under the Derivatives Act

Amendments to UMIR to extend supervisory requirements to electronic trading

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.

OSC to terminate contingency trust fund

The OSC yesterday announced the winding up of Ontario Contingency Trust Fund, which provides limited compensation to clients of dealers that are unable to return funds or securities to clients. Ontario securities laws require every dealer that is registered under the Securities Act (Ontario) , other than an exempt market dealer, to participate in a compensation fund or contingency trust fund that has been approved by the OSC and that satisfies certain other requirements. Most of the current participants of the OCTF now participate in another approved compensation fund or are no longer registered.

Participants in the OCTF that remain registered and that are not members of IIROC or the MFDA may seek an exemption from the compensation fund participation requirement, and a simplified procedure for obtaining an exemption is provided in the notice.

For more information, see OSC Staff Notice 33-739.

CSA adopt "notice-and-access" allowing electronic posting of proxy and other materials

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.

Continue Reading...

Amendments to anti-money laundering regulations would clarify monitoring obligations

Stuart Carruthers and Alex Colangelo -

On October 13, Canada's Department of Finance published draft amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (PCMLTFR) to improve Canada's compliance with the Financial Action Task Force's Recommendation 5 (now reformulated as Recommendation 10). As we discussed in a Financial Services Update earlier this year, the FATF's Recommendation 10 sets out essential criteria regarding customer due diligence and record-keeping.

In order to improve compliance with Recommendation 10, the Department of Finance initiated a consultation process in November 2011 to address deficiencies in the customer due diligence provisions under the PCMLTFR. The Department eventually received 41 responses to its consultation paper and also conducted follow-up discussions with stakeholders prior to releasing the amendments last month. Principally, the amendments add a definition of "business relationship" to the PCMLTFR and clarify the obligations surrounding ongoing monitoring and the circumstances under which reporting entities must take enhanced customer due diligence measures. According to the Department of Finance, the proposed amendments do not introduce any new administrative burdens on regulated entities but, rather, resolve ambiguities in the PCMLTFR.

Continue Reading...

CSA proposal would mandate OBSI dispute resolution for all registered dealers and advisors

The Canadian Securities Administrators today published for comment proposed amendments to NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and its companion policy that would require registered dealers and advisers outside Quebec to make the services of the Ombudsman for Banking Services and Investments available to clients to satisfy their obligations regarding offering independent dispute resolution or mediation services.

Under the proposals, a "complaint" would relate specifically to trading or advising activity of a registered firm or representative. The complaint would be required to be raised within six years of the date a client knew or reasonably ought to have known of the trading or advising activity and would involve claims no greater than $350,000. Where OBSI was unwilling or unable to consider a complaint, a registered firm would have to ensure that the services of another dispute resolution or mediation service was made available to the client.

According to the CSA, mandating OBSI as the common service provider for all registered dealers and advisers would serve the best interests of investors and registrants. The CSA have asked stakeholders specific questions about the proposals, including with respect to the time limit on complaints and OBSI's current terms of reference. Comments are being accepted until February 15, 2013.

OSC proposes increase in fees

On August 23, 2012, the Ontario Securities Commission (OSC) published proposed amendments to its fee rule, 13-502.

Being a self-funded agency, and citing issues like the increasing need to deal with regulatory matters on an international level and the complexity added by technological advances in trading and trading strategies and products, fees are generally proposed to be increased over the three years following implementation of these proposals. While fees for both registrants and issuers are proposed to be increased, the increase will represent a 7.9% increase per year for registrants, as compared to 15.5% for issuers, in an attempt to continue to bring the balance for the two groups closer to 50/50.

For example, the annual corporate finance participation fee for issuers in the $50 million to under $100 million capitalization category is slated to increase from the current $5,125 to $5,925 effective April 1, 2013, and then increasing to $6,850 and $7,900 over the following years. The annual capital markets participation fee for registrants in the $1 million to $3 million (Ontario revenues) category, for example, is slated to increase from the current $7,250 to $7,825 effective April 1, 2013, and to $8,400 and then $9,110 over the following two years.

Continue Reading...

IIROC releases 2011-2012 Annual Report

Hot on the heels of the OSC's release of its 2012 Annual Report, IIROC has just released its annual report for 2011-2012. Entitled Raising the Bar, the report outlines the progress made by IIROC to enhance regulatory standards and strengthen investor protection in Canada, and also summarizes the organization's enforcement activities over the last year.

Of particular interest, the report includes a scorecard that sets out how IIROC's activities in fiscal 2012 furthered the goals outlined in its Strategic Plan for 2011-2012 (IIROC recently updated its Strategic Plan for 2012-2015). Accomplishments over the last year included completing the initial phase of the Dealer Member rules plain language rewrite (as we discussed in March 2011 and May 2011), finalizing the OTC Securities Fair Pricing Rule, and conducting over 300 onsite compliance reviews of member firms.

On the enforcement end, IIROC noted that it held 73 disciplinary hearings over the course of the year, issued 29 suspensions and banned 9 individuals from the industry. This compares to 60 disciplinary hearings, 19 suspensions and 13 bans the previous year.

OSC revisits shareholder democracy issues in its 2012 Annual Report

Ramandeep Grewal -

The Ontario Securities Commission (OSC) yesterday announced the publication of its 2012 Annual Report. The report reviews the OSC's activities in 2011-12, including with respect to policy initiatives and enforcement.

Our readers will recall that, as we discussed in January of 2011, the OSC published a staff notice earlier this year advising of its review of shareholder democracy issues, including director elections, say-on-pay and the effectiveness of the process voting system. This was followed by the TSX’s publication of proposed amendments its rules to, among other things, require issuers listed on the TSX to elect directors individually, hold annual elections for all directors, disclose annually whether they have adopted a majority voting policy and if not, explain why not, and advise the TSX if a director receives a majority of "withhold" votes.

The OSC revisits these issues in its Annual Report, highlighting that shareholders “want the OSC to facilitate shareholder empowerment concerning significant decisions about governance, compensation and transactional matters involving reporting issuers” and that the OSC is considering specific policy initiatives that would strengthen the role of shareholders in uncontested director elections. Stating that reporting issuers are “encouraged to adopt majority-voting polices” and that it supports the TSX’s initiatives, the report notes that the OSC and TSX are discussing further steps to ensure that all TSX-listed issuers adopt majority-voting polices within a reasonable time frame.

Continue Reading...

Deadline to submit ABCP settlement form extended

The OSC and IIROC this week announced that the deadline for submitting participation forms in connection with the distribution of settlement funds to eligible investors that purchased third-party ABCP is being extended to October 26, 2012. Participation forms and information on eligibility requirements are available on the Ernst & Young website.

Updated guidance for applications to cease to be a reporting issuer

The CSA yesterday issued a new version of CSA Staff Notice 12-307, which sets out guidance on coordinated review applications made under NP 11-203 for a decision that an issuer is not a reporting issuer. The notice covers such topics as: (i) applying for a decision under a simplified procedure; (ii) applying for a decision where an issuer is not eligible to use a simplified procedure; (iii) describing the decision sought in an application in a way that addresses legislative differences between jurisdictions; (iv) applying for a decision in the case of foreign issuers with a small securityholder presence in Canada; and (v) the procedure for dissolved issuers.

Notably, the amended notice now clarifies that the simplified procedure for coordinated review applications is only available to issuers whose securities, including debt securities, are not traded on a marketplace in Canada or in another country and expands the restriction to include any other facility for bringing together buyers and sellers of securities where trading data is publicly reported. Meanwhile, the notice now also states that the simplified procedure and the modified approach are not available to "OTC reporting issuers", as defined in Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets (and as discussed in our June post).

Further, the notice reminds issuers that a decision obtained under a coordinated review applications is only applicable for the purposes of securities legislation. Depending on the jurisdiction, an issuer may also have to make a separate application under the business corporations legislation under which it was incorporated, continued or amalgamated for an order that it is no longer a public company.

The OSC has also issued its own staff notice with regards to applications made to the OSC only .

For more information, see CSA Staff Notice 12-307 Applications for a Decision that an Issuer is not a Reporting Issuer and OSC Staff Notice 12-703 Applications for a Decision that an Issuer is not a Reporting Issuer.

Court denies leave to commence secondary market class action

Ingrid A. Minott

In Green v. Canadian Imperial Bank of Commerce, a decision released on July 3, 2012, Justice Strathy denied the plaintiffs in a putative secondary market securities class action leave to assert a cause of action under Part XXIII.1 of the Ontario Securities Act (OSA).  His Honour concluded that although the plaintiffs met the test for leave under section 138.8 of the OSA, the right to pursue an action under section 138.3 was time-barred because leave had not been obtained prior to the expiry of the three year limitation period under section 138.14. In addition, Justice Strathy refused to certify the plaintiffs’ common law claim for negligent misrepresentation.

Background

The plaintiffs, two shareholders of Canadian Imperial Bank of Commerce sought leave under section 138.8 of the OSA to pursue an action under section 138.3 for statutory misrepresentation in the secondary securities market against CIBC and four of its senior directors for misrepresentations that allegedly occurred between May 31, 2008 and February 28, 2008 (the Class Period). The plaintiffs also sought to certify the action as a class proceeding pursuant to section 5 of the Class Proceedings Act, 1992 (CPA).

Continue Reading...

Autorité des marchés financiers v. Fournier: objection dismissed!

Éric Azran and Patrick Desalliers -  

On June 22, 2012, the Quebec Court of Appeal (QCA) issued a groundbreaking judgment in Autorité des marchés financiers v. Fournier. Specifically, the QCA held that in the context of an examination conducted by an investigator of the AMF pursuant to an investigation under section 239 of the Quebec Securities Act (QSA), the attorney representing the investigated party cannot raise objections. The Fournier ruling raises important issues with respect to AMF investigators now being empowered with dual and conflicting roles of prosecutor and judge.

Continue Reading...

Quebec's Complaint Reporting System - Reminder of semi-annual filings for registrants in Quebec

Firms registered or otherwise licensed by the AMF in Québec, including as securities dealers or advisers, must file their semi-annual report of client complaints on the AMF’s Complaint Reporting System (CRS) by July 30 covering the period of January 1 to June 30.  The next semi-annual filing must be completed no later than January 30 for the July 1- December 31 period.

These semi-annual filings must be completed electronically on the AMF’s CRS. For information on obtaining a CRS user code to access the system and other information on applicable requirements governing the fair and equitable handling of complaints under the Quebec rules, please refer to the CRS link above.

OSC to increase transparency in individuals' registration decisions

The Ontario Securities Commission today released a staff notice advising that, when OSC Staff recommend that the Director refuse, amend, suspend or impose terms and conditions on an individual's registration status under the Securities Act, staff will provide written notice of its recommendation and brief reasons not only to the individual registrant, but also the sponsoring firm. Historically, staff only sent sponsoring firms their recommendation and not any of the reasons underlying the recommendation.

According to the staff notice, providing the additional information to firms will assist firms in maintaining accurate and complete information, while enhancing investor protection. For more information, see OSC Staff Notice 33-737.

OSC releases statement of priorities for 2012-2013

The Ontario Securities Commission released the final version of its Statement of Priorities today for the financial year ending March 1, 2013. As we discussed in an earlier post, the OSC published a draft version in March, and the final version of the statement addresses some of the comments received by the regulator.

Notably, the OSC states that it intends, in consultation with the CSA, to complete a thorough analysis on, and issue a research paper regarding, the question of whether an explicit statutory fiduciary duty or other standards should apply to all advisers and dealers in Ontario. Our own Ed Waitzer has written extensively on the subject.

The OSC has also included in its revised statement that it will make application under section 128 of the Securities Act [applications to court] where appropriate to compensate investors.

OSC settlement proceedings may be applied to investor education

On June 20, Ontario's Bill 55, the Strong Action for Ontario Act (Budget Measures), 2012 received Royal Assent. Of particular interest, the Bill amends the Securities Act to set out additional circumstances under which the OSC will be exempted from having to pay money it receives into Ontario's Consolidated Revenue Fund.

Specifically, the expanded exemption will capture funds that are designated under the terms of an order or settlement for use by the OSC for the purpose of educating investors or promoting knowledge regarding the operation of the securities and financial markets.

The Bill also increases the maximum number of members of the Ontario Securities Commission from 15 to 16.

IIROC provides information on exemptions granted in 2011

Yesterday, the Investment Industry Regulatory Organization of Canada (IIROC) released a notice providing information on exemptions granted in 2011. Ultimately, IIROC granted a total of 66 exemptions last year, most of which were related to requests by a Participant to act as a principal or agent in respect of a trade that would be completed off-marketplace. The exemptions covered by the notice, however, do not include those related to proficiency or other registration requirements. For more information, see IIROC Notice 12-0166.

Roundtable discussion considers issues in anti-corruption policies and practices

Lisa Culbert -

On April 19, Transparency International Canada Inc. hosted its second annual Day of Dialogue featuring 12 roundtable discussions on current issues in anti-corruption policies and practices. Transparency International is part of an international coalition that monitors global corruption and provides education, information and training to the Canadian business community, the general public and government agencies to facilitate effective anti-corruption programs.

This year’s Day of Dialogue focused on current key topics, including the Niko Resources Ltd.prosecution and probation order, issues in creating and operating a compliance program, understanding corruption risks and impacts and compliance-based due diligence in mergers and acquisitions, among other items. As discussed in our post of August 10, 2011, the Niko prosecution signalled Canada’s ramp up of anti-corruption enforcement under the Corruption of Foreign Public Officials Act (the CFPOA). One of the key terms of the Niko plea agreement was the requirement to design and implement a compliance program to detect and deter CFPOA violations. The program was required to meet thirteen requirements, which mirrored the order from the probation order in U.S. v. Panalpina World Transport (Holding) Ltd. – a case where Panalpina, a Switzerland-based freight company admitted to paying over $27 million in bribes to foreign officials. The thirteen requirements for the corporate compliance program, consistent with the expectations of the CFPOA include:

Continue Reading...

Canada eases sanctions against Burma

The Canadian government announced earlier this week that it is easing some of the sanctions against Burma (found in the 2007 Special Economic Measures (Burma) Regulations) in response to reforms occurring within the country. Components of the sanctions regime that were repealed include provisions prohibiting importing from and exporting into the country, as well as the prohibitions against investing in property situated in Burma. The sanctions still preclude, however, business dealings with prohibited persons and transactions involving arms and related material. Burma has also been removed from the Area Control List, which will permit the export of goods and technology found in the Export Control List without an export permit.

Canadian regulators adopt new requirements for credit rating agencies

Ramandeep Grewal -

On March 9, the Canadian Securities Administrators (CSA) published a notice of the adoption of National Instrument 25-101 Designated Rating Organizations along with related consequential amendments.

The Instrument sets out relevant filing, disclosure, governance and other requirements applicable to a “designated rating organizations”. The “designation” requirement or trigger is set out (or will be set out) in securities legislation. The result is that a credit rating organization (CRO) will be required to apply to be a “designated rating organization” (DRO) in order for its credit ratings to be used to satisfy securities law requirements that require a credit rating to be given by a “designated rating organization.”

NI 25-101 provides the governance framework for DROs but there is, at the current time, no requirement to for credit ratings to be given by DROs – this is something the regulators will implement in the future. There will also be no change to the Canadian framework that exempts CROs from the civil liability provisions of securities legislation. The consequential amendments do, however, impact the disclosure required in a short or long form prospectus (including investment fund prospectus) as well as annual information forms (AIFs). 

The Instrument and all consequential amendments come into force April 20, 2012. In the case of the prospectus disclosure (long form, investment fund and short form) the changes apply where the preliminary prospectus is filed on or after April 20, 2012. The changes to the disclosure required in an AIF apply for disclosure in respect of financial years ending on or after April 20, 2012.

Continue Reading...

Ontario approves various regulatory amendments

The Ontario Securities Commission recently announced that Ministerial approval has been granted in respect of the previously-announced: (i) amendments to NI 25-101 Designated Rating Organizations; (ii) Supervisory MOU between the OSC, EMSA, AMF and BCSC; (iii) changes to NI 81-102 Mutual Funds; and (iv) MOU with the ASIC.

Foreign asset income trusts revive interest in income trust market

Doug Richardson

The public offerings of two foreign asset income trusts (FAITs) have revived interest regarding income trusts in Canada, bringing to light a relatively untapped market. The key factor driving this renewed attention is that FAITs are not subject to traditional Specified Investment Flow-Through (SIFT) rules, as a result of their ownership of assets outside of Canada.

The royalty trust and income trust markets trace their origins to 1986 and 1995, respectively. As interest rates declined during the period and beyond these trusts became popular, since they provided lofty yields well in excess of the prevailing interest rate payable by corporations with similar credit ratings. The reason for the discrepancy was primarily due to the fact that royalty trusts and income trusts were flow-through vehicles that avoided the payment of corporate level tax. The yields payable by these trusts varied, but were typically in the 8 – 10% range.

Continue Reading...

OSC releases statement of priorities for 2012-2013 fiscal year

The Ontario Securities Commission today released its draft Statement of Priorities for the financial year ending March 31, 2013. Today's statement follows last month's publication of the OSC's three-year strategic plan. According to the OSC, the regulator has five regulatory goals for the upcoming fiscal year, namely:

  1. delivering responsive regulation, which includes improving the proxy voting system, developing a consultation paper addressing issues associated with market data in a multi-marketplace environment, and considering alternate capital raising exemptions in addition to the accredited investor and $150,000 exemption;
     
  2. delivering effective enforcement and compliance by, for example, conducting more targeted compliance reviews;
     
  3. delivering strong investor protection, which notably includes re-evaluating the client-adviser relationship to consider whether an explicit statutory fiduciary duty or other standards should apply in Ontario;
     
  4. running a modern, accountable and efficient organization; and
     
  5. supporting and promoting financial stability.

The OSC is accepting comments on its Statement of Priorities until May 29. For more information, see OSC Notice 11-766. For the OSC's 2011-2012 Statement of Priorities, see our blog post of June 17, 2011.

IIROC to consolidate enforcement rules

On March 23, the Investment Industry Regulatory Organization of Canada (IIROC) released a set of proposed rules intended to consolidate and rationalize enforcement-related rules currently contained in the Dealer Member Rules and UMIR. Specifically, the proposed rules include those respecting investigations, disciplinary hearings, compliance and registration. Consequential amendments to UMIR would also be made.

IIROC is accepting comments on the proposals until June 21, 2012. For more information, see IIROC Notice 12-0104.

OSC recommendations for emerging market issuers, including auditors and underwriters

Jay C. Kellerman, Simon A. RomanoBrian 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).

Continue Reading...

TMX migrating to IIROC's STEP surveillance platform

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.

OSC identifies concerns arising from review of emerging market issuers

The Ontario Securities Commission today published a Staff Notice outlining areas of concern relating to emerging market issuers. As we discussed last summer, the OSC recently undertook a targeted review of Ontario reporting issuers with significant business operations in emerging markets following the disclosure-related allegations made against Sino-Forest. According to the OSC, the regulator wanted to "ensure that any systemic or specific issues" affecting such issuers were addressed in light of the importance of emerging market issuers in the Canadian and global marketplace.

To that end, the OSC reviewed 24 issuers ranging across various industries such as mining, forestry, financial services and technology. Among other things, the review involved an examination of the public disclosure records of the selected issuers, as well as examinations of board and audit committee activities.

Ultimately, the OSC identified four principal concerns arising from its review, namely with respect to: (i) the level of issuer governance and disclosure; (ii) the adequacy of the audit function for annual financial statements; (iii) the adequacy of the due diligence process conducted by underwriters in offerings of securities; and (iv) the nature of the exchange listing approval process. Of particular interest, the OSC noted that it is concerned that emerging market issuers may be employing an approach of "form over substance" with respect to compliance. Meanwhile, the OSC also noted that the fact that many of the issuers had little presence in Canada contributed to a "separation" between management functions in the emerging market jurisdiction and Canadian governance.

Ultimately, the report provides a list of recommendations to guide emerging market issuers, their auditors and underwriters and exchanges in addressing the OSC's concerns. For more information, see OSC Staff Notice 51-719.

SEC awarded stay in "no contest" settlement case

On March 15, the U.S. Court of Appeals for the Second Circuit issued a stay of proceedings in a case brought against Citigroup Global Markets Inc. by the Securities and Exchange Commission.  The SEC's complaint against Citigroup for negligent misrepresentation related to the company's marketing of collateralized debt obligations (CDOs) and followed an industry-wide investigation into the recent financial crisis.

The SEC had asked for the stay of proceedings after the district court refused to approve the proposed consent judgment that contained no admission of liability. The district court had rejected the settlement based in part on the rationale that a consent judgment without an admission of liability was bad policy and failed to serve the public interest.

In granting the stay, the Second Circuit found a strong likelihood that the district court's ruling would be overturned. The Second Circuit took particular issue with the district court's lack of deference towards the SEC's judgment on discretionary matters of policy.

The ruling may be of particular interest to Canadian regulation-watchers in light of the fact that the OSC is currently considering adopting new enforcement tools, including "no-contest" settlements.

Canadian regulators sign MOU with ESMA regarding credit rating agencies

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.

CSA revises instrument regulating credit rating agencies

The Canadian Securities Administrators today published a revised version of NI 25-101 Designated Rating Organizations and related consequential amendments intended to achieve uniformity of drafting across Canada. As we discussed in a January post, the CSA initially submitted the materials for Ministerial approvals earlier this year. Pursuant to the non-material changes released today, the CSA has resubmitted the proposals. Assuming Ministerial approval of this latest version, the instrument will come into force on April 20, 2012.

OSC releases 2012-2015 Strategic Plan

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.

OSC identifies IFRS areas of interest

Last week, the OSC's Office of the Chief Accountant published a staff notice highlighting selected areas of interest with respect to financial reporting in the era of IFRS, and identifying areas for closer examination during 2012. Among other things, the notice considers: (i) the level of compliance with certain features of IFRS 3 Business Combinations; (ii) accounting for business combinations under common control; and (iii) the application of the requirements of IAS 36 Impairment of Assets. According to the OSC, the objective of the notice is to provide market participants with information that may assist in preparing financial reports during 2012.

Proposed amendments to prospectus marketing rules: pre-marketing of bought deals and other amendments

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.

Continue Reading...

Court of Appeal makes it clear that plaintiffs must obtain leave for secondary market class action within 3 year limitation period

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.

Continue Reading...

CSA release 2011 enforcement report

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.

Proposed amendments to prospectus marketing rules: road shows

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.

Continue Reading...

Canadian regulators sign MOU with Australian regulator

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.

Proposed amendments to prospectus marketing rules: use of term sheets during and after the waiting period

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. This is our second in a series of posts on the subject. Our first considered the new "testing the waters" exemption for IPOs.

Once a preliminary prospectus has been filed and receipted (starting the “waiting period”), Canadian securities laws currently expressly permit only for the distribution of the preliminary prospectus or the solicitation of expressions of interest from prospective purchasers provided that, prior to making the solicitation or forthwith after the purchaser indicates an interest in purchasing, a copy of the preliminary prospectus is provided. The distribution of communications such as notices, circulars, advertisements or letters is also permitted. However, in addition to identifying the person from whom a copy of a preliminary prospectus may be obtained, such communications may only identify the security proposed to be issued, its price (if then determined), and the name and address of the person from whom the securities may be purchased.

Continue Reading...

CFTC and SEC release joint report on international swap regulation

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.

IIROC publishes proposed dealer margin rules

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.

Coventree sanctions decision raises interesting points

Simon Romano -

On December 23, the Ontario Securities Commission released its reasons for imposing sanctions in its case against Coventree Inc. and two of Coventree's directors. As we discussed in an earlier post, the Commission recently ordered Coventree to pay an administrative penalty of $1 million and costs of $250,000, while the defendant directors were each ordered to pay a penalty of $500,000.

The sanctions decision raises a couple of points of particular interest. First, the decision considers the principle enunciated in Kienapple that an accused cannot be punished for more than one offence arising out of the same set of facts. While the principle has been applied in an administrative context in the past, the Commission in the immediate case raised doubt as to whether the principle would apply to an OSC proceeding. Regardless, the Commission found that the failure to issue and file a news release  in respect of a material change in this case was a distinct offence from the failure to file a material change report in respect of the same material change. As such, the Commission's opinion on the applicability of Kienapple was not determinative.

Further, the decision discusses Staff's request that the Commission issue an order preventing the director defendants from seeking or accepting indemnification from Coventree for any penalty imposed. The Commission ultimately found that it lacked the authority to make such an order. In the Commission's view, however, there would be nothing preventing Staff from negotiating a provision in a settlement agreement limiting a director or officer from seeking such indemnification.

FSB releases Canada peer review report

On January 30, the international Financial Stability Board released its Peer Review of Canada report. The peer review, undertaken in 2011, was intended to assess Canada's progress in addressing issues identified during this country's Financial Sector Assessment Program (FSAP) review in 2007-2008. FSAP assessments of member countries occur every five years, with peer reviews typically following two or three years later.

Ultimately, the report concluded that Canadian authorities have made good progress in addressing FSAP recommendations on banking supervision, stress testing and the early intervention regime. According to the report, authorities have also taken steps to address issues with respect to ABCP and structured finance markets and have also made progress on recommendations in the securities sector.

The report's conclusions on the last point may be of particular interest. Specifically, the FSB notes the improvements made on such issues as coordination among provincial regulators, registration reform and enforcement actions. According to the report, however, additional steps are still needed.

Notably, the report cites the fact that the passport system does not address policy development or enforcement matters. Further, while the passport system is intended to sustain coordination, the report notes that the CSA is not a legal entity and relies on the goodwill and consensus of its members. According to the report, a single national securities regulator is preferable. The FSB also highlights issues with respect to, among other things, the oversight reviews of SROs, the effectiveness of enforcement actions, the oversight of derivative products and the differences in regulation of market intermediaries.

NYSE disallows broker voting of uninstructed shares on corporate governance proposals

On January 25, NYSE Euronext announced that it would no longer permit broker voting of uninstructed shares in the case of certain corporate governance proposals previously categorized as "Broker May Vote". The change in policy follows the elimination of discretionary voting by brokers in director elections in 2010 and the prohibition introduced by the Dodd-Frank Act respecting discretionary voting by brokers on executive compensation.

IIROC provides guidance on seeking UMIR exemptions

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.

CSA adopt proposals to regulate credit rating organizations

Earlier today, the Canadian Securities Administrators announced the adoption of a new national instrument, related policies and consequential amendments to impose regulatory oversight for designated credit rating agencies and organizations. The new NI 25-101, first proposed in draft form in July 2010 and amended in March 2011 requires designated rating organizations to establish, maintain and comply with a code of conduct substantially based on the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies unless exemptive relief is obtained. The  instrument also sets out requirements with respect to compliance, filing, and the maintenance of books and records.

Meanwhile, all jurisdictions except Ontario are adopting amendments to Multilateral Instrument 11-102 Passport System to permit the passport system to be used for applications for designations by credit rating organizations and exemptive relief applications by designated rating organizations. NP 11-205, which was also published and to which Ontario is a party, is the equivalent policy that sets out how the process would work for filing and the review of an application to become a designated rating organization in Ontario and the passport jurisdictions.

While the draft instrument was amended in response to comments received during the consultation process, the changes are not considered material. As such, assuming Ministerial approvals are received, the new instrument and related policies and consequential amendments will come into force on April 20, 2012.

ASC outlines compliance review of EMDs

Last week, the Alberta Securities Commission released a staff notice providing a summary of staff's initial compliance reviews of firms registered as exempt market dealers (EMDs). The notice highlights issues identified in staff's review and provides guidance with respect to suggested practices. Common issues identified include: (i) policies and procedures not reflecting EMDs' actual business practices; (ii) inconsistencies between clients' tolerance for risk and the types of securities that EMDs sell; (iii) an inability by some EMDs to demonstrate having conducted an appropriate level of due diligence to satisfy the suitability requirement; and (iv) EMDs not always adequately disclosing relationships to clients with respect to issuers, ownership of securities, outside business activities, and risks related to borrowing money for the purposes of making financial investments.

The notice also provides information regarding the compliance activities to be performed by ASC staff in the future. For more information, see ASC Staff Notice 33-704 Review of Exempt Market Dealers.

Minister of Finance approves MOU between OSC and FINRA

The Ontario Securities Commission announced today that Ontario's Minister of Finance has approved its Memorandum of Understanding with the U.S. Financial Industry Regulatory Authority. The MOU, which we discussed in our post of November 18 and became effective as of December 13, is intended to facilitate the exchange of information between the two regulators.

Supreme Court of Canada finds proposal to nationalize securities legislation outside the authority of the federal government

On December 22, the Supreme Court of Canada released its much-anticipated opinion, rejecting the federal government’s proposal to implement a national securities regulatory scheme under the oversight of a national securities regulator. The express question posed to the Court was whether the proposed Securities Act (the “proposed Act”) fell within Parliament’s general authority to regulate trade and commerce under section 91(2) of the Constitution Act, 1867. The Supreme Court answered in the negative, concluding that taken as a whole, the proposed Act was chiefly directed at regulating matters falling within provincial authority over property and civil rights.

In considering the division of powers between Parliament and the provinces, the Supreme Court noted the emergence of a flexible view of federalism "that accommodates overlapping jurisdiction and encourages intergovernmental cooperation," highlighting that while important, cooperation and flexibility cannot override or modify the separation of powers. The Supreme Court then applied a “pith and substance” analysis against this backdrop of “cooperative federalism,” looking at the purpose and effects of the proposed law to determine whether its “main thrust” was within Parliament’s jurisdiction over trade and commerce.

Continue Reading...

AMF releases further details on the proposed regulatory framework under the Money-Services Businesses Act

In a news release published last week, the Autorité des marchés financiers (the AMF) stated that it anticipates that the Money-Services Businesses Act (the Act) will come into force on April 1, 2012, as will the Policy Statement to the Money-Services Businesses Act, the Regulation under the Money-Services Businesses Act and the related Regulation respecting Fees and Tariffs. The AMF also anticipates that all statutory and regulatory provisions dealing with the operation of automated teller machines will come into force on January 1, 2013.

The Act and regulations will require any person or entity who operates a money-services business for remuneration to hold a licence issued by the AMF and to disclose information about its directors, officers, partners, shareholders, branch managers, employees working in Quebec and certain types of lenders. The Act and regulations also set out the nature, form and content of the books, registers and records that a money-services business must maintain and preserve, as well as the requirements governing the identification of customers and co-contracting parties.

Continue Reading...

Supreme Court finds federal government out of bounds with national regulator proposal

The Supreme Court of Canada ruled today that the proposed Canadian Securities Act is outside the jurisdiction of the federal Parliament.

Siding in certain respects with the lower court decisions from Alberta and Quebec, the Court held that the Act viewed in its entirety cannot be classified as falling with the general trade and commerce power of the national government.

Check back here for more details on the decision.

OSC extending consultation period on new enforcement tools

The Ontario Securities Commission announced yesterday that it is extending the public consultation period in respect of its proposed new enforcement initiatives. As we discussed in an October post, the OSC is currently considering, among other things, allowing cooperative respondents to resolve enforcement matters without admitting facts or to non-compliance with securities law (commonly known as a "no-contest" settlement).

Citing high levels of public interest in the proposals, the OSC has now extended the deadline for comments until January 16, 2012. Further, a policy hearing will be held to seek additional input. For more information, see OSC Staff Notice 15-705.

AMF increases regulatory fees for 2012

On December 16, the Autorité des marchés financiers announced adjustments to certain costs and fees for the upcoming year. Specifically, fees payable under laws administered by the AMF, including the Securities Act and Derivatives Act, will increase by 2.66% as of January 1, 2012. For the AMF's complete list of adjusted fees, see section 1.1 of AMF Bulletin vol. 8, no. 50.

Overcoming securities regulation lock-in

Canadian financial regulators are hampered by the gridlock that comes with fragmentation. Independent oversight could promote new ways of thinking

Ian Russell and Edward Waitzer -

As Canadian securities regulators become more fragmented, the tendency to "lock-in" to policy choices based on previous decisions has increased.

This tendency is natural where individuals working in teams are often less equipped to act on key information than when there is more accountability. The gridlock is exacerbated by a complex and rapidly evolving market environment, contributing to oversimplification and "tunnel vision." Many of us tend to see the world in a particular way when it serves our self-interest to do so. It's easy to ignore "inconvenient" facts or analysis to promote a desired outcome. And yet in today's world, "normal" paradigms rarely hold up.

Likewise, there is a proclivity for "conservatism bias," where information is interpreted to confirm prior expectations. There is also perceived safety in the status quo, even when available evidence suggests a different course of action. This is particularly so when consensus is difficult to achieve or there is much uncertainty over the consequences of a particular action.

Each of these biases are a disincentive to engage in independent, analytical thought. Efforts are made to avoid such conduct through accountability mechanisms (e.g., review by third parties, independent auditing). But these mechanisms no longer work as effectively as they should with Canadian securities regulators.

The challenge is particularly acute with respect to the reform of existing rules, where inertia becomes an obstacle to the adjustments required to ensure competitive and well-functioning markets and to address the inevitable, unintended consequences of regulation.

Continue Reading...

Supreme Court to rule on national regulator this week

The Supreme Court of Canada announced today that its judgment in the reference case regarding the proposed Canadian Securities Act and whether Parliament has the Constitutional authority to create a national regulator will be released on Thursday morning at 9:45 a.m. Check back here on Thursday for coverage of the decision. The Supreme Court heard arguments in the case in April of this year.

For more information, see our earlier posts on the subject:

SCC hearing on national securities regulator: Day 2 (April 14, 2011)

SCC hearing on national securities regulator: Day 1 (April 13, 2011)

Quebec Court of Appeal rules against federal securities regulator (April 1, 2011)

Alberta Court of Appeal finds proposed federal Securities Act unconstitutional (March 8, 2011)

CSTO provides update on federal securities regulation (January 12, 2011)

Proposed federal securities legislation moves Canada a step closer to capital market regulation at a national level (June 8, 2010)

Proposed federal Securities Act outlines framework for regulation of derivatives (May 27, 2010)

Compensation for victims of financial fraud considered by AMF

Quebec's Autorité des marchés financiers today launched a public consultation to consider a potential compensation system for consumers of financial products and services that have been victims of fraud. Specifically, the AMF is seeking submissions on issues such as:

  • the role of compensation among measures intended to protect consumers of financial products and services;
  • accountability of consumers and representatives;
  • fundamental objective of a compensation system;
  • approach with respect to consumer compensation;
  • responsibility for managing mechanisms intended to compensate victims of financial crime;
  • products, representatives and conduct covered by the compensation fund; and
  • funding the compensation fund and cost containment measures.

The AMF is accepting submissions from interested parties until February 7, 2012.

Canadian regulators update policy on electronic delivery

The Canadian Securities Administrators today announced the adoption of changes to National Policy 11-201 Delivery of Documents by Electronic Means. The revised policy clarifies that, subject to electronic commerce and other legislation, delivery requirements of securities legislation can generally be satisfied through electronic delivery if:

  • the receipt of the document has notice of electronic delivery and easy access to the document being delivered;
  • the document received is the same as the document delivered; and
  • the deliverer has evidence of delivery.

The Policy provides further guidance on how each of these elements can be satisfied. While express consent is not required for effective delivery under the Policy, CSA staff clarify that express consent may assist in achieving the key components identified above and note that it may still be required under electronic commerce legislation.

The Policy has been amended to reflect various developments that have taken place since it was first implemented in 2000. These include changes to e-commerce and corporate legislation, the introduction of legislation governing electronic transactions and protection of personal information and the general proliferation of electronic communications. The amendments, published in draft form in April, are intended to simplify guidance on the form and substance of securityholder consents, reduce technology-related references that may become obsolete and alert stakeholders to other legislation addressing the electronic delivery of documents. As the CSA does not consider its revisions to the proposed amendments to be material, no comment period will be provided and the amendments come into effect today.

OSC and FINRA enter into information sharing arrangement

The Ontario Securities Commission announced today that it has entered into a Memorandum of Understanding with the U.S. Financial Industry Regulatory Authority intended to establish a formal basis for cooperation between the regulators and to facilitate the exchange of information . According to the OSC Chair Howard Wetston, "[c]ross-jurisdictional regulatory coordination is essential for protecting investors in today's global marketplace. This framework acknowledges the interconnectedness of our markets and represents our commitment to working collaboratively with our international regulatory partners to address threats to investors and markets." The MOU is subject to approval by Ontario's Minister of Finance.

OSC registrant compliance report flags deficiencies and provides guidance

Alix d'Anglejan-Chatillon and Alex Colangelo

On September 23, the Ontario Securities Commission released OSC Notice 33-736 – 2011 Annual Summary Report for Dealers, Advisers and Investment Fund Managers. While the report was prepared by the OSC’s Compliance and Registrant Regulation Branch (the Branch) to assist dealers, advisers and investment fund managers in complying with Ontario securities laws, it provides useful guidance for registrants and applicants for registration in all Canadian jurisdictions. The report primarily covers the OSC’s 2011 fiscal year and (i) reviews recent developments in light of the new registration regime; (ii) considers Canada’s response to global financial developments, including with respect to OTC derivatives regulation and the potential systemic risks posed by hedge funds; (iii) discusses the OSC’s recent focus on registrant misconduct; (iv) provides information for firms and individuals applying for registration by, among other things, identifying common deficiencies in registration applications and providing corresponding guidance; and (v) identifies trends in deficiencies and suggested practices for registrants, advisers, investment fund managers and dealers based on ongoing compliance reviews.

Continue Reading...

OSC hosts Dialogue 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.

OSC releases investment fund issuers report

The OSC released a report today providing an overview of initiatives impacting investment fund issuers. Specifically, the report reviews the status of the OSC's key policy initiatives, including the CSA's project to modernize investment fund product regulation, the Point of Sale disclosure project, and proposed amendments to prospectus requirements.

The report also discusses observations and findings emanating from OSC Staff's prospectus reviews of non-redeemable investment funds and ETFs, prospectus reviews of hypothetical pro-forma performance data, continuous disclosure reviews of money market funds, ETFs and investment portfolio holdings, and disclosure reviews of Independent Review Committees.

The OSC's outreach and consultation practices are also discussed, including its publication of the Investment Funds Practitioner and the creation of the new Investment Funds Product Advisory Committee. For more information, see OSC Notice 81-716.

IIROC releases compliance report for 2011

The Investment Industry Regulatory Organization of Canada (IIROC) yesterday released its Annual Consolidated Compliance Report for 2011. The report outlines matters that require firm attention, identifies deficiencies identified by IIROC's compliance examination teams over the last year and sets out IIROC's focus for the 2011-2012 examination cycle.

The report begins by identifying a number of matters requiring firm attention, including with respect to notification to IIROC of material changes. Specifically, the report notes that in some instances dealers having made significant changes to business models without informing IIROC prior to implementation.

Meanwhile, common examination deficiencies respecting financial and operations compliance include missing written services agreements in related party transactions and cases in which inaccurate or inappropriate margin rates have been applied. In the case of business conduct compliance, the report identifies a number of deficiencies, including: (i) situations where members with order-execution only services provide clients with "planning tools" that result in recommendations; (ii) policies and procedures that have not been appropriately customized to a firm's business and risks; (iii) inadequate identification of conflicts of interest; (iv) inadequate controls respecting the sale of private placements to accredited investors; and (v) inadequate controls respecting employee accounts.

The report also discusses the focus for the 2011-2012 examination cycle, including client complaints handling, the use of titles and designations, and trading conduct compliance. With respect to the latter, IIROC states, among other things, that it will be conducting reviews of compliance with best execution obligations and dealers' OTC supervision procedures. 

For more information, see IIROC Notice 11-0306.

OSC proposes "no-contest" settlement program and considers whistleblower bounty program

In a bid to resolve enforcement matters more quickly and effectively, the Ontario Securities Commission today announced a series of proposed enforcement initiatives that would include permitting market participants to enter into no-contest settlements.

According to the notice, the timeliness and effectiveness of OSC investigations are currently being affected by the concerns of those being investigated that actions taken in response to an investigation may prejudice concurrent or potential civil litigation. As such, the OSC has proposed the following measures:

  1. No-enforcement action agreements - Such agreements would be explicit in circumstances where market participants self-report and immediately remediate, and would be available in a number of situations. OSC Staff could also consider an agreement where a self-reporting party also reports in respect of the conduct of other parties where the conduct in question was jointly carried out. While Staff have simply advised participants that no action will be taken under the current processes, the proposals would make their decisions explicit with the result of greater certainty for market participants.
     
  2. No-contest settlement program - Although recent amendments to the OSC's Rules of Procedure (Rule 12) have eliminated the explicit requirement for admissions in settlement agreements to be presented to a Commission panel for approval, settlement agreements generally include an admission of facts and of non-compliance with Ontario securities law or conduct contrary to the public interest. The program will therefore allow cooperative respondents to resolve enforcement matters without admitting facts or to non-compliance with securities law. Such settlements would have to meet the public interest requirements set out in the Securities Act and would be limited to respondents not previously subject to enforcement or regulatory activity by the OSC or another agency.
     
  3. Clarified process for self-reporting - This proposal would introduce a proffer process to provide greater transparency and certainty for self-reporters.
     
  4. Enhanced public disclosure for credit granted for cooperation - The proposal would enhance disclosure regarding the credit granted for cooperation in respect of proceedings before hearing panels, settlements and matters relating to the proposed no-enforcement action agreement.
Continue Reading...

New tax proposals announced to restrict upstream loans made by foreign affiliates

Jonathan Willson

On August 19th, 2011, the Department of Finance released for public consultation a package of amendments to the foreign affiliate rules in the Income Tax Act (Canada) (the ITA) and related regulations. Included among these proposals are a series of new provisions (the "upstream loan rules") designed to restrict the use of loans as a mechanism to distribute funds from certain types of foreign affiliates to their Canadian shareholders to avoid the tax that would otherwise be paid on dividend distributions by such affiliates. Under the current rules, such loans can be used to distribute profits to a Canadian taxpayer, thereby enabling the taxpayer to avoid receiving a dividend from a foreign affiliate that would be, at least partially, subject to Canadian income tax.

Conceptually, these proposed amendments will operate in a manner similar to the existing rules in subsection 15(2) that apply to shareholder loans, in that they will require, subject to certain exceptions, all or a portion of an upstream loan that is received by a Canadian taxpayer (or certain other persons) to be included in the taxpayer's income.

Continue Reading...

Proposed flow-through share donation amendments - Bill C-13

John G. Lorito and Jill Winton -

A flow-through share is a share which allows the issuing corporation to renounce resource deductions to shareholders who can use such deductions to offset their income.  Under the Income Tax Act (Canada) (the Tax Act), the cost of a flow-through share to the shareholder is deemed to be nil.  When the shareholder disposes of a flow-through share, the portion of any capital gain that is attributable to the proceeds of disposition up to the shareholder’s original cost amount represents a partial recovery by the government of the tax benefit realized by the taxpayer in connection with the renunciation and deduction of the resource expenses.

Continue Reading...

OSC requests comment on TMX acquisition

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.

OSC report sets out deficiencies from compliance review of registrants

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.

TV ads raise concerns with regulatory staff

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.

Proposed amendments for stage 2 of point of sale disclosure for mutual funds

On August 12, the Canadian Securities Administrators (CSA) published for comment amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), Form 81-101F3 Contents of Fund  Facts Document and Companion Policy 81-101CP Mutual Fund Prospectus Disclosure (the Proposed Amendments). The Proposed Amendments, together with consequential amendments, set out Stage 2 of the CSA’s implementation of the point of sale disclosure framework published in 2008. 

The Proposed Amendments will, among other things, require the delivery of the Fund Facts to investors within two days of their purchase of the fund, permit the delivery of the Fund Facts to satisfy the current prospectus delivery requirements under securities legislation and eliminate the current requirement to deliver the simplified prospectus (which will be required to be provided to investors upon request).

The Proposed Amendments are Stage 2 of a three-stage process. Stage 1 (completed on January 1, 2011 and discussed in our post October 28, 2010) required mutual funds subject to NI 81-101 to produce and file the Fund Facts and make it available on the mutual fund’s or mutual fund manager’s website. Stage 3 will consider point of sale delivery for other types of publicly offered investment funds. The comment period expires on November 10, 2011.

Canada's Corruption of Foreign Public Officials Act shows its teeth

Susan Hutton and Paul Beaudry -

On June 24, 2011, Niko Resources Ltd., a Calgary-based oil and gas exploration and production company, entered a guilty plea under Canada’s Corruption of Foreign Public Officials Act (CFPOA) with respect to charges of bribing a public official in Bangladesh. Niko, which operates in a number of countries around the world, had been notified by Canadian authorities in January 2009 that it was being investigated over allegations that it had provided the Energy Minister of Bangladesh with a $190,000 vehicle for personal use as well as with trips to Calgary and New York. These gifts had been made at the time when the Minister was assessing how much compensation was owed to Bangladeshi villagers for water contamination and other environmental concerns caused by explosions at a Niko operation.

Niko’s sentence included a $9.5 million fine and a three-year probation order that requires the company to implement a detailed compliance program subject to review by an independent auditor. Prior to Niko’s conviction, only one Canadian company had been convicted of foreign bribery under the CFPOA in the past decade. The $25,000 fine issued by the court in that case, known as R. v. Hydro Kleen Services Inc., was less than the bribe involved.

Continue Reading...

IIROC proposes UMIR amendments to address dark liquidity

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.

ASC releases 2011 Annual Report

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

OSC announces regulatory review of emerging market issuers

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

IIROC publishes circuit breaker levels for Q3 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.

Fairness opinions revisited: Lessons for the board

William J. Braithwaite

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

Continue Reading...

AMF releases draft regulations under Money-Services Businesses Act

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

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

OSC releases revised statement of priorities for 2011-2012

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

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

Federal securities transition office provides update on activities

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

SEC adopts whistleblower rules

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

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

Update on regulators' responses to postal strike

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

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

OSC provides guidance in case of mail disruption

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

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

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

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

CSA provide update on modernization of publicly offered investment funds regulation

The Canadian Securities Administrators published a notice yesterday providing an update on the project to modernize investment fund product regulation. As we discussed in June 2010, the first phase of the project involves amending NI 81-102 Mutual Funds and NI 81-106 Investment Fund Continuous Disclosure to codify exemptive relief that is frequently granted to mutual funds and other investment funds and replace the patchwork orders with uniform requirements. Amendments to that end were proposed last year and, according to yesterday's notice, the CSA intend to publish the amendments in final form by the end of the summer.

Meanwhile, Phase 2 of the modernization project involves identifying and addressing issues concerning market efficiency, investor protection and fairness that arise out of the differing regulatory regimes that apply to different types of publicly offered investment funds. A stated aim of this phase, which is to be implemented in two stages, is reducing the potential for regulatory arbitrage. The first stage would include adopting proposals for restrictions and operational requirements for non-redeemable investment funds analogous to those in NI 81-102 in order to address investor protection and fairness concerns. The CSA plan to publish such proposals for comment in early 2012. During the second stage of this phase of the project, the CSA intend to consider whether certain investment restrictions in NI 81-102 should be loosened in recognition of product and market developments.

Public comments on the proposals are being accepted until July 25, 2011.

IIROC to post webcast on fiduciary standards

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.

OSC secures finding of guilt against operator of unregistered securities sales office

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.

CSA publish proposed amendments to policy respecting electronic delivery of documents

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.

IIROC republishes market regulation fee model

IIROC has republished its market regulation fee model, which it first published for comment in November 2010. In response to comments received by IIROC to its original proposals, the republished fee model maintains the discount for market makers. IIROC is accepting comments on its most recent proposal until May 13. For more information, see IIROC Notice 11-0125.

SCC hearing on national securities regulator: Day 2

The Supreme Court continued its hearings today on the reference case considering the constitutionality of the proposed federal Securities Act. While a number of interveners, including the Attorney General of OntarioFAIR Canada and the Canadian Coalition for Good Governance made submissions in favour of the federal scheme, a number of provinces lined up to oppose the initiative. Specifically, New Brunswick, Manitoba, British Columbia and Saskatchewan argued that the proposed legislation is outside the jurisdiction of the Parliament of Canada. Not surprisingly, the Supreme Court reserved its decision.

SCC hearing on national securities regulator: Day 1

The Supreme Court of Canada today began hearing the reference case submitted by the federal government regarding the constitutionality of the proposed federal Securities Act. As we've discussed in previous blog posts, the Courts of Appeal of both Alberta and Quebec have ruled that the proposed Act is outside the jurisdiction of the federal government.

The hearing began this morning with submissions by counsel for the Attorney General of Canada, who argued that the proposed Act met the General Motors  test (as expanded in Kirkbi) for determining whether there is a valid exercise of Parliament's general trade and commerce power under the Constitution Act, 1867. Essentially, the federal government argued that rather than focusing on a particular industry, this case impacts the economy as a whole. The Justices, however, were determined in their questioning, challenging federal counsel to explain how their arguments could withstand the fact that the provinces already work (relatively harmoniously) to regulate the space.

The afternoon saw submissions by counsel for Quebec and Alberta, who argued that the proposed Act is, in pith and substance, directed at the regulation of securities, which falls within the scope of property and civil rights under the Constitution Act, 1867. Quebec and Alberta also argued that the double-aspect doctrine did not apply in this case as the proposed Act has virtually identical subject matters, purposes and aspects as existing provincial and territorial securities regulatory legislation.

The hearing, which is being live-streamed on the Supreme Court website, will pick up tomorrow with submissions of interveners at 9:00 a.m. For live updates during the hearing, see our Twitter feed @Cdn_Securities.

IIROC publishes circuit breaker levels for Q2 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.

CSA release IIROC oversight review

Earlier this month, the Canadian Securities Administrators released an oversight review of the Investment Industry Regulatory Organization of Canada. The review was intended to: (i) asses whether IIROC is in compliance with the terms and conditions of its recognition order; (ii) assess whether IIROC's regulatory processes are adequate, consistent and fair; and (iii) evaluate the progress of the integration of IIROC's predecessor, the IDA and RS.

While the review found IIROC to be in substantial compliance with the terms and conditions of its recognition order, it identified a number of areas for improvement and provided CSA's recommendations. IIROC's responses were also included.

Quebec Court of Appeal rules against federal securities regulator

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.

CSA, IIROC and MFDA announce expanded disciplined persons list

Yesterday, the Canadian Securities Administrators (CSA), Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association (MFDA) announced the launch of an expanded Canadian Disciplined Persons List. The expanded list will now include the names of persons disciplined by IIROC and the MFDA, dating back to 2004, in addition to records of disciplinary actions by provincial securities regulators.

Noting that sanctions imposed by securities regulators are a matter of public record, the announcement states that the combined list will now allow the public to search for those disciplined by securities regulators or the SROs in one place, regardless of how serious the matter.

New Act allows gov't to freeze assets and prohibit financial transactions and services to politically exposed foreign persons

On March 23, Bill C-61, the Freezing Assets of Corrupt Foreign Officials Act, was given Royal Assent and came into effect. The Act allows the federal government to freeze the assets of "politically exposed foreign persons" in cases where the person has allegedly misappropriated the property of a foreign state or inappropriately acquired property by virtue of office or personal or business relationships. Orders and regulations may also be made to prohibit Canadians from dealing with any property of a politically exposed foreign person, facilitating financial transactions related to such property or providing financial or other related services in respect of such property.

Further, certain domestic entities are now under a duty to determine, on a continuing basis, whether they are "in possession or control of property that they have reason to believe is the property of a politically exposed foreign person" who is the subject of an order or regulation made under the Act.

Notably, this duty to determine is imposed on, among others,

  • entities that engage in any activity described in paragraph 5(h) of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (which includes those engaged in the business of foreign exchange dealing) if the activity involves the opening of an account for a client; and
     
  • entities authorized under provincial legislation to engage in the business of dealing in securities or to provide portfolio management or investment counseling services.

Meanwhile, all Canadians have a duty to report to the RCMP the existence of property in their possession or control that they have reason to believe is the property of a politically exposed foreign person subject to a government order described above.

Wasting no time in making use of the new legislation, the government adopted the corresponding Freezing Assets of Corrupt Foreign Officials (Tunisia and Egypt) Regulations on March 23 in order to respond to requests by Tunisia and Egypt to freeze the property of certain of their nationals accused of misappropriating property.

CSA update proposals to regulate credit rating organizations

The Canadian Securities Administrators (CSA) today released revised proposals to impose regulatory oversight for designated credit rating agencies and organizations. As we discussed in our post of July 16, 2010, the CSA released its original proposals last July.

The revised proposals include a number of key changes to the CSA's July proposals, namely: (i)  designated rating organizations would no longer be permitted to deviate from the included code of conduct based substantially on the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies unless exemptive relief was obtained; (ii) additional provisions beyond those mandated in the IOSCO Code, regarding such issues as governance and ratings reports, would be required of credit rating organizations; (iii) compliance officers would now be prohibited from participating in the development of credit ratings, methodologies and models and the establishment of compensation for most employees of designated rating organizations; and (iv) the requirement that directors and officers of a designated rating organization or a credit rating organization applying to be designated submit personal information forms has been eliminated.

Further, all jurisdictions except Ontario published for comment proposed amendments to Multilateral Instrument 11-102 Passport System to permit the passport system to be used for applications for designations by credit rating organizations and exemptive relief applications by designated rating organizations. Proposed NP 11-205, to which Ontario is a party, would be the equivalent policy that sets out how the process would work for filing and the review of an application to become a designated rating organization in Ontario and the passport jurisdictions. The revised proposals also note the trend in other jurisdictions towards the imposition of civil liability on credit rating organizations and state that, while the CSA has not included similar proposals at this time, the CSA will continue to monitor such developments.

Various Canadian jurisdictions have also proposed or implemented amendments in their securities legislation to give effect to recognition of credit rating organizations. In Ontario, a new Part IX was added to the Securities Act under Bill 135. The applicable provisions came into force on December 8, 2010.

The CSA will be accepting comments on the revised proposals until May 17, 2011. For more information, see proposed National Instrument 25-101 Designated Rating Organizations.

SEC staff recommend uniform fiduciary duty for broker-dealers and investment advisers

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".

OSC to publish rule on electronic trading and direct electronic access to marketplaces

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.

CSA release enforcement report for 2010

The Canadian Securities Administrators recently released their 2010 Enforcement Report, which summarizes the steps taken by regulators over the past year "to detect and disrupt misconduct in Canada's capital markets." The report notes that 178 proceedings were commenced in 2010 against 301 individuals and 183 companies, while 174 cases were concluded. Notably, of the cases concluded, 64 were concluded by court proceeding, representing a marked increase from the 35 in 2009. Illegal distributions were the most frequent type of securities law violation, and represented two-thirds of concluded cases. The report also provides a number of case summaries to illustrate the type of activity that constitutes the various categories of violations.

Alberta Court of Appeal finds proposed federal Securities Act unconstitutional

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.

OSC releases statement of priorities for 2011-2012

On February 25, the OSC released for comment a draft of its 2011-2012 Statement of Priorities. According to the OSC, its planning for the year was influenced by developments in the overall investment marketplace, the regulatory arena domestically and internationally and stakeholder perceptions of regulatory effectiveness. Ultimately, the OSC identified five broad priorities, namely to:

  1. better demonstrate its commitment to investor protection by undertaking policy and rule development as well as compliance and enforcement programs;
     
  2. intensify operational, compliance and enforcement efforts;
     
  3. modernize its regulatory systems and approaches, including by focusing on risk oriented regulatory responses and implementing a robust framework for OTC derivatives;
     
  4. pursue a coordinated approach to securities regulation by supporting the development of a federal securities regulator and working to harmonize and modernize regulation through the CSA; and
     
  5. demonstrate accountability for its performance as a leading securities regulator in Canada.

Comments on the are being accepted by the OSC until April 27, 2011. For more information, see OSC Notice 11-765.

OSC signs MOU with MFDA to facilitate compliance and enforcement

A memorandum of understanding between the OSC, certain other provincial securities regulators and Investment Industry Regulatory Organization of Canada (IIROC) entered into with the Mutual Fund Dealers Association of Canada (MFDA) is set to come into effect on March 23, 2011.

The MOU is intended to facilitate the sharing of information regarding compliance and enforcement matters by establishing a framework for the MFDA's use, under certain circumstances, of the National Registry Database system.

FAIR Canada releases report on financial fraud

Last week, FAIR Canada released a report entitled A Decade of Financial Scandals, which reviews various cases of financial fraud and presents a number of recommendations for the consideration of governments and regulators. Specifically, the report's recommendations deal with fraud prevention, the early detection of financial fraud, enforcement and better compensation for victims.

OSC "cracking down" on insider trading

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."

Make advisors work for investors

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.

Continue Reading...

TSX proposes new listing category for resources companies; broader application of insider participation aggregation and tightening of 2% limit on compensation arrangements used as employment inducements

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.

NERA releases update on Canadian securities class actions

NERA Economic Consulting yesterday released an update on the number and value of securities class action claims in Canada. Specifically, Trends in Canadian Securities Class Actions: 2010 Update notes that there are now a record 28 active Canadian securities class actions representing almost $16 billion in outstanding claims. The study considers trends in filings and resolutions and notes that the most common claims continue to relate to allegations of operational misrepresentations and accounting misrepresentations for cases filed in 2010. Readers may also be interested in the publication's consideration of US securities class actions against Canadian companies.

CSTO provides update on federal securities regulation

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.

IIROC publishes circuit breaker levels for Q1 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.

Quebec corporate law reform in effect February 2011

Sylvie Hébert

The new Quebec Business Corporations Act (QBCA), which was introduced following three years of extensive consultations, will come into force on February 14, 2011.

Major reform of Quebec corporate law

As discussed in our December 2009 bulletin, the QBCA makes major changes to the regime applicable to companies currently governed by the Quebec Companies Act (QCA). These changes will take effect as soon as the QBCA comes into force on February 14, 2011 as the Act will automatically apply to companies constituted, continued or resulting from an amalgamation under Part IA of the QCA without any action required on their part. They will become “business corporations” governed by the new statute, as will insurance companies within the meaning of the Act respecting insurance, to which Part IA of the QCA applies. Companies constituted, continued or resulting from an amalgamation under Part I of the QCA will, for their part, have five years to send articles of continuance to the enterprise registrar in accordance with the new statute, failing which they will be dissolved. The same transition period will apply to companies incorporated under the Mining Companies Act.1

Continue Reading...

CSTO begins drafting federal securities regulations

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.

New version of SEDAR filer manual available

The CSA announced today that a new version of the SEDAR Filer Manual (version 8.15) is now available, which provides updated and new guidance on such things as privacy, passport processes and filing processes. For more information, see CSA Staff Notice 13-317.

Bill 135 changes to Securities Act establish derivatives regulation

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.

IIROC proposes uniform 6-year limitation period for enforcement proceedings

On November 26, the Investment Industry Regulatory Organization of Canada proposed amendments to its Dealer Member Rules that would provide a uniform six-year limitation period to all IIROC enforcement proceedings. While current rules allow IIROC to initiate proceedings against a former member or former approved person for five years after the cessation of IIROC membership, there is no limitation period on proceedings relating to current dealer members or approved persons. Specifically, the new rule, which would apply to current and former members and approved persons, would require IIROC to commence proceedings within six years of "the date of the occurrence of the last event on which the proceeding is based."

IIROC is accepting comments on the proposed amendments until January 25, 2011, and specifically requested comment on the concept of allowing for the extension of the limitation period where both IIROC and the Dealer Member or Approved Person agree to the extension.

For more information, see IIROC Notice 10-0310, the language of the proposed amendments and the blackline of the rules proposed to be amended.

SEC proposes whistleblower program

On November 3, the U.S. Securities and Exchange Commission released a proposal to reward individuals that provide information that leads to successful SEC enforcement action in which monetary sanctions total more than $1 million. The proposal, emanating from Dodd-Frank, also includes provisions to discourage whistleblowers from bypassing a company's compliance program. For more information on the implementation of Dodd-Frank, see the SEC's intended schedule for planned rule proposals.

Tax withholding on stock option benefits: Will you be ready on January 1, 2011?

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.

Continue Reading...

CSA/IIROC publish position paper on dark liquidity

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.

CSA members sign agreement with Chinese insurance regulator

The Canadian Securities Administrators announced last week that eight of its members (the provincial regulators but for Newfoundland and PEI) signed a regulatory cooperation agreement with the China Insurance Regulatory Commission. According to the CSA release, the agreement "paves the way for Chinese insurers to invest in financial products on Canadian markets regulated by CSA participating jurisdictions." The agreement is currently in effect in seven jurisdictions and, pending ministerial approval, will take effect in Ontario on January 12, 2011.

Bill 128 introduces technical amendments to Quebec's Derivatives Act

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.

Quebec introduces money services business licensing legislation

Currency exchange and funds transfer businesses not otherwise regulated would be covered.

Alix d’Anglejan-Chatillon and Jason Streicher

On November 10, 2010, there was a first reading by Quebec's National Assembly of Bill 128, An Act to enact the Money-Services Businesses Act and to amend various legislative provisions mainly concerning special funds and the financial sector (Bill 128).

If adopted, Bill 128 would result in the enactment of the Money-Services Businesses Act (the MSB Act). The Québec government has stated that the oversight of money-services businesses is part of a broad offensive against tax evasion and money laundering. The MSB Act would require that persons operating a "money-services business" for compensation obtain a license from Quebec’s financial markets authority, the Autorité des marchés financiers (the AMF), and disclose information about their directors, officers, partners, shareholders, branch managers, employees working in Quebec and certain types of lenders they deal with. The term "money-services business" is not defined but the MSB Act would define "money services" to include currency exchange, funds transfer, the issue or redemption of travelers’ cheques, money orders or bank drafts, cheque cashing, or operating automated teller machines. If the lessor of a commercial space is responsible for keeping an automated teller machine supplied with cash, the lessor would also be subject to the licensing provisions of the MSB Act. 

Continue Reading...

Proposals introduced to relax prohibition against issuance of debt by certain pension fund corporations

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.

OSC releases Corporate Finance Branch and Market Regulation Branch reports

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.

IIROC publishes fourth quarter 2010 circuit breaker levels

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.

Ontario proposes IFRS-related changes to Commodity Futures Act regulation

The Ministry of Finance recently announced proposed changes to Regulation 90 under the Commodity Futures Act to ensure consistency with IFRS terminology. Comments on the proposed amendments are due on November 19.

IIROC releases AML compliance guide

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

CSTO provides update on transition to federal regulator

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.

FINRA proposes allowing all-public panel arbitrations

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.

IIROC announces launch of surveillance platform

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.

SEC timing on Dodd-Frank implementation

The Securities and Exchange Commission has published a timetable on its website outlining its schedule for implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The timetable, which extends to July 2011, suggests a busy year of rule-making at the SEC and would see, among other things, new rules regarding shareholder votes on executive compensation proposed by the end of the year.

European Commission proposes OTC derivatives regulation

Citing the need to increase transparency and reduce counterparty and operational risk, the European Commission recently released new proposals to regulate the OTC derivatives market. Among other things, the proposals would require trades in OTC derivatives in the EU to be reported to central data centres (trade repositories) accessible to regulators. A new European Securities and Markets Authority would be responsible for registering and monitoring trade repositories, while standard OTC derivatives would have to be cleared through central counterparties. The EC expects the proposals to be promulgated by the end of 2011.

For more information, see the EC Press Release and the accompanying Impact Assessment.

OSC invites applications for CDAC membership

The Ontario Securities Commission (OSC) put out a call last week for new applications for membership on its Continuous Disclosure Advisory Committee (CDAC). The CDAC, which was established in 2002 and meets four to six times per year, advises OSC staff on such things as the planning, implementation and communication of its review program, as well as policy and rule-making initiatives. The OSC invites representatives of reporting issuers, industry associations, advisors, investing organizations and "any other interested persons" to apply by September 30, 2010.

Unsolicited telecommunications rules apply to financial industry

On August 19, the Canadian Radio-television and Telecommunications Commission (CRTC) issued a decision amending its interpretation of the Unsolicited Telecommunications Rules with respect to the financial industry. This decision amends the CRTC's previous interpretation and finds that unsolicited calls made by financial advisers to existing clients for the purpose of solicitation constitute telemarketing under the rules.  While the "existing business relationship" or "business-to-business" exemptions may still apply to such calls, financial advisers are no longer exempt from the rules.

See: Telecom Regulatory Policy CRTC 2010-599 and Telecom Information Bulletin CRTC 2010-600

Minister approves regulatory cooperation MOU

As we discussed in our post of June 16, the Ontario Securities Commission, Quebec's Autorité des marchés financiers and the U.S. Securities and Exchange Commission (SEC) recently signed a Memorandum of Understanding to facilitate the supervision of regulated entities that operate on a cross-border basis. The Minister of Finance has now approved the MOU.

OSC releases 2010 Annual Report

Earlier this week, the Ontario Securities Commission released its 2010 Annual Report, which provides a review of the OSC's activities over the past year. Of particular interest, the report discusses various compliance issues associated with the implementation of registration reform, IFRS and corporate sustainability reporting. The report also reviews the results of compliance reviews of registrants, public companies and investment fund issuers.

MFDA proposes amendments to minimum capital requirements and financial questionnaire and report

The Mutual Fund Dealers Association of Canada (MFDA) proposed amendments today to MFDA Rule 3.1.1 that are intended to ensure that MFDA Members registered in other registration categories under Canadian securities legislation are subject to consistent minimum capital requirements under MFDA Rules and National Instrument 31-103 Registration Requirements and Exemptions. The MFDA also proposed amendments today to MFDA Form 1 (Financial Questionnaire and Report) that are intended to to align financial reporting under Form 1 with International Financial Reporting Standards.
 
Comments are being accepted on the proposed amendments to Rule 3.1.1 and Form 1 until October 12, 2010.

Canadian anti-money laundering and anti-terrorist financing update

Revised CSA staff notice and SEMA Iran regulations released

CSA release revised staff notice regarding terrorist financing reporting obligations

As reported in our post of July 30, 2010, the Canadian Securities Administrators (CSA) published CSA Staff Notice 31-317 (Revised) – Reporting Obligations Related to Terrorist Financing on July 30, 2010 (the Revised Notice), updating their initial release of April 16, 2010. The Revised Notice does not refer to the new Special Economic Measures (Iran) Regulation (described below) but these new rules should be considered in conjunction with the Revised Notice.

The purpose of the Revised Notice is to clarify the CSA’s view that firms relying on any exemption from the dealer or adviser registration requirements for the purposes of engaging in the business of “dealing in securities” or “providing portfolio management or investment counseling services” in any Canadian jurisdiction must comply with the Canadian federal monthly reporting and other requirements relating to terrorist financing and United Nations sanctions, described in the Revised Notice (Canadian Terrorist Financing and UN Sanctions Regulations).

Continue Reading...

CESR publishes proposals following review of MiFID

On July 29, the Committee of European Securities Regulators published a set of recommendations, pursuant to a review of the Markets in Financial Instruments Directive, intended to improve the functioning and transparency of securities markets. The recommendations include advice on equity markets, non-equity markets transparency, transaction reporting and investor protection and intermediaries.

AMF issues blanket relief from CCO proficiency requirements for derivatives portfolio managers

Alix d'Anglejan-Chatillon and Jason Streicher

Under Quebec’s derivatives legislation, the Chief Compliance Officer (CCO) of a derivatives portfolio manager is required to have at least three years of relevant derivatives experience and to have passed all required IIROC exams with respect to derivatives for an officer of a derivatives dealer (the Derivatives Proficiency Requirements) in addition to satisfying the proficiency requirements of National Instrument 31-103 Registration Requirements and Exemptions.

On July 27, 2010, the Autorité des marchés financiers, Quebec's financial services regulator, issued a blanket decision which exempts the CCO of a derivatives portfolio manager from the Derivatives Proficiency Requirements provided the firm has designated an Officer Responsible for Derivatives Operations who meets prescribed proficiency requirements that are detailed in the blanket decision with respect to options, futures and swap-related products.

The decision is in effect as of July 30, 2010.

SEC Chairman speaks of next steps in regulatory reform

With the recent approval of financial regulatory reform legislation in the United States, SEC Chairman Mary Schapiro provided an outline of next steps in a speech last week to the Center for Capital Markets Competitiveness in Washington D.C. Specifically, Ms. Schapiro discussed five topics that new rules will need to address, namely, (i) oversight of OTC derivatives and the need for joint rulemaking between the CFTC and SEC; (ii) fiduciary duty in respect of existing standards of care applicable to broker-dealers and investment advisors; (iii) registration requirements for hedge funds, (iv) expanded corporate disclosure, including upcoming rules that will set new standards of independence for compensation committees; and (v) credit rating agencies. According to Ms. Schapiro, the next year will a busy one for the SEC and CFTC as a number of new proposals are introduced.

CSA release staff notice regarding terrorist financing reporting obligations

The Canadian Securities Administrators today released CSA Staff Notice 31-317 (Revised) – Reporting Obligations Related to Terrorist Financing. The revised Notice is intended to make clear CSA staff's views that all dealers and advisers relying on exemptions from the registration requirements are subject to federal monthly reporting requirements, including newly exempted international dealers and international advisers. The Notice also sets out the view of CSA staff regarding the mechanics of complying with federal reporting requirements and includes a new consolidated CSA reporting form.

For more information on the initial publication of the Notice, see our post of April 29. For a brief description of the implementation of anti-terrorist financing legislation in Canada, see our update of March 19, 2008. Our insurance colleagues have also prepared a helpful overview of Canada's listings and sanctions laws that, while focused on insurers, also applies to entities engaged in the business of dealing in securities or providing portfolio management or investment counselling services.

UK Treasury launches financial regulation consultation

On Monday, Her Majesty's Treasury launched a consultation to gather views on the British Government's proposals to reform the UK's financial regulatory framework. As discussed in our post of June 17, the proposals would: (i) give the Bank of England the authority over macro-prudential regulation; (ii) establish a new prudential regulator, operating as a subsidiary of the Bank of England, that would regulate financial firms; and (iii) establish a new Consumer Protection and Markets Authority to regulate the conduct of financial firms providing services to consumers. The just-released consultation document provides further details regarding the proposals and asks specific questions for public comment.

House committee releases report of CBCA review

Last month, the House of Commons' Standing Committee on Industry, Science and Technology released a report based on its statutory review of the Canada Business Corporations Act. The report considered a number of issues and ultimately recommended that a broad public consultation be conducted by the government within two years regarding issues such as: (i) executive compensation, including whether shareholders should have an advisory vote on compensation packages; (ii) shareholder rights and governance, including the election of directors and shareholder approval for significantly dilutive acquisitions; and (iii) securities regulation.

OSC approves rule to improve settlement agreement approval process

On July 20, the Ontario Securities Commission (OSC) announced that it had approved the adoption of a new rule Rule 12 to its Rules of Procedure in order to enhance the approval process with respect to settlement agreements. Specifically, the new rule would provide for a settlement conference to be held in camera, before a public settlement hearing, for the purpose of providing the parties the opportunity "to make confidential submissions on a proposed settlement to a Panel in order to obtain guidance on whether the terms of the proposed settlement would, in the view of the Panel, be in the public interest." 

Goldman Sachs settles complaint with SEC

The U.S. Securities and Exchange Commission (SEC) announced last week that Goldman, Sachs & Co. had agreed to pay $550 million to settle charges that the company had misled investors respecting a subprime mortgage product. The settlement also requires remedial action by Goldman Sachs with respect to the company's review and approval of certain mortgage securities offerings and additional education and training of employees in this area of the company's business. For more on the case and settlement, see this article from the New York Times.

CSA release MFDA Oversight Review Report

Earlier this month, the Canadian Securities Administrators released its Oversight Review Report of the Mutual Fund Dealers Association of Canada. The report followed an oversight review of the MFDA's regulatory functions by staff at various provincial securities regulators to (i) assess whether the MFDA is in compliance with the relevant terms and conditions of its recognition orders; (ii) determine whether the MFDA's regulatory processes are efficient, effective, consistent and fair; and (iii) evaluate whether the MFDA has adequate staffing, resources and training to perform its regulatory functions effectively and efficiently.

Ultimately, while the review found that the MFDA was generally compliant with the relevant terms and conditions of its recognition orders, it did include a number of recommendations, including with respect to the Financial Compliance group at head office. Recommendations concerned internal benchmarks used by the Financial Compliance group, the review of financial questionnaire and reports and the financial compliance examination process. The report includes the MFDA's responses to the report's concerns and the expected follow-up where appropriate.

Financial regulatory reform approved by US Congress

On July 15, the U.S. Senate passed the Dodd-Frank Wall Street Reform and Consumer Protection Act by a vote of 60-39. The legislation is intended to overhaul the financial regulatory system in the U.S. by improving the supervision and regulation of federal depository institutions, providing transparency to derivatives markets and setting out obligations regarding corporate governance and executive compensation.

The legislation, which was passed by House of Representatives on June 30, is now awaiting the President's signature. A brief summary of the legislation is provided by the House Financial Services Committee, while Steven M. Davidoff provides some thoughts in the New York Times' DealBook.

OSC approves MFDA rule amendments regarding client accounts and communication

The OSC has approved amendments to MFDA rules respecting client accounts, client communications and client reporting. The original proposals, which we noted in our post of May 2009 and will, among other things, require that investors are provided with certain information at the time of account opening, clarify the duty of MFDA Members and approved persons to assess the suitability of investments in client accounts when various triggering events occur and clarify Members' supervisory requirements regarding client communications that disclose a rate of return.

CSA publish proposed rule regarding credit rating organizations

The Canadian Securities Administrators today published for comment a proposed rule, policies and related consequential amendments that would impose regulatory oversight for designated credit rating agencies and organizations. Under the proposals, credit rating organizations wishing to become designated for the purposes of having their credit ratings eligible for use where credit ratings are referred to in securities legislation would have to apply and, once designated, maintain and ensure compliance with a code of conduct that complies with the provisions of the IOSCO Code of Conduct Fundamentals for Credit Ratings Agencies of the International Organization of Securities Commissions. The IOSCO Code addresses such issues as: (i) the quality and integrity of the rating process; (ii) credit rating agency independence and the avoidance of conflicts of interest; (iii) credit rating agency responsibilities to the investing public and issuers; and (iv) disclosure of the code of conduct and communication with market participants. Deviations, however, from the provisions of the IOSCO Code would be permitted under certain circumstances.

Comments are being accepted by the CSA until October 25, 2010.

Notice and Request for Comment - Proposed National Instrument 25-101 Designated Rating Organizations, Related Policies and Consequential Amendments.

FSA Chairman discusses UK regulatory changes

In a speech Tuesday to the British Bankers' Association, Lord Adair Turner, Chairman of the Financial Services Authority (FSA) discussed a new approach to regulation in the U.K. Specifically, Lord Turner discussed a "major shift in philosophy" towards a "more pre-emptive and intrusive approach to supervision". This would involve analyzing trends in the economic and market environment to identify potential risks to consumers, examining firms' business models to understand the drivers of profitability, reviewing whether firms have product development and approval processes that weed out innappropriately marketed or harmful products and taking action to ensure customers are protected where incentives, structures or products are found that would likely lead to poor customer outcomes.

CSA propose "notice and access" shareholder communication model

Mihkel E. Voore and Ramandeep Grewal

As we discussed in our post of April 9, the Canadian Securities Administrators (CSA) have recently published much-anticipated proposals to amend National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101), which would give issuers the option to post proxy-related materials on a non-SEDAR website under a “notice-and-access” model. The proposed amendments aim not only to facilitate communication with shareholders, but also include amendments intended to increase the overall efficiency and equity among key players involved in the securityholder communication process.

Continue Reading...

IIROC publishes third quarter 2010 circuit breaker levels

On July 2, the Investment Industry Regulatory Organization of Canada (IIROC) published Notice 10-0191 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 third quarter of 2010 as 1,000 points, 2,050 points and 3,050 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%) - 1,150 points; Level 2 (20%) - 2,350 points and Level 3 (30%) - 3,500 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.

UK to overhaul financial regulation

In a June 16 speech at the Lord Mayor's Dinner for Bankers & Merchants of the City of London, the Chancellor of the Exchequer outlined a plan to reform financial regulation in Britain. Specifically, the Chancellor announced a plan to abolish the current tripartite system of regulation, which consists of the Financial Services Authority (FSA), the Bank of England and the Treasury, and wind down the FSA.

In place of the current system, an independent Financial Policy Committee at the Bank of England would be tasked with macro-prudential regulation.  According to the Secretary to the Treasury, Mark Hoban, "[o]nly central banks have the broad macroeconomic and markets understanding, the authority and the knowledge required to make macro-prudential judgments." Meanwhile, a new prudential regulator, operating as a subsidiary of the Bank of England would regulate financial firms, including banks, investment banks and insurance companies. Finally, a new Consumer Protection and Markets Authority would be established to regulate the conduct of financial firms providing services to consumers.

According to the Chancellor, the transition to the new regulatory system is intended to be completed in 2012.

SEC, AMF and OSC sign regulatory cooperation arrangement

On Monday, the U.S. Securities and Exchange Commission (SEC), Quebec's Autorité des marchés financiers and the Ontario Securities Commission (OSC) announced the signing of a memorandum of understanding to facilitate the supervision of regulated entities that operate on a cross-border basis. The parties intend to consult, cooperate and exchange information related to the supervision and oversight of such regulated entities and the MOU is intended to support and facilitate such cooperation.

IOSCO publishes revised objectives and principles for global regulators

The International Organization of Securities Commissions (IOSCO) yesterday published a revised Objectives and Principles of Securities Regulation to incorporate principles based on "lessons learned from the recent financial crisis". Eight new principles were added to the document, including principles related to hedge funds, credit rating agencies and auditor independence. According to IOSCO the principles "outline the basis of an appropriate, effective and robust securities regulatory system".

AMF and UAE sign assistance and mutual cooperation agreement

On June 8, Quebec's Autorité des marchés financiers (AMF) announced that it had entered into a cooperation agreement with the United Arab Emirates' Emirates Securities and Commodities Authority (ESCA). The agreement is intended to "set up and implement a system for mutual assistance and exchange of information between the ESCA and the AMF in order to facilitate the performance of their respective securities-related functions".

Six securities authorities join IOSCO consultation and cooperation MOU

The International Organization of Securities Commissions (IOSCO) announced today that securities regulatory authorities from South Korea, Uruguay, Iceland, the Maldives, Saudi Arabia and Syria have been invited (the latter four states pending membership approval) of the IOSCO Multilateral Memorandum of Understanding concerning Consultation, Cooperation and the Exchange of Information (MMoU). The MMoU provides a mechanism through which securities regulators may exchange information and assist one another in enforcing compliance with their respective securities laws and regulations.

IIROC hosting Tips for Traders Toronto

The Investment Industry Regulatory Organization of Canada (IIROC) announced today that it is hosting a "Tips for Traders Toronto" education session on June 16 at the Design Exchange to consider recent market events and associated compliance issues. President and CEO of IIROC Susan Wolburgh Jenah will be making the opening remarks.

Proposed federal securities legislation moves Canada a step closer to capital market regulation at a national level

On May 26, 2010, the federal Department of Finance released its proposed Canadian Securities Act (the Act). The Act builds upon the Report released last year by the Expert Panel on Securities Regulation and represents the federal government’s proposal for a harmonized national regime to govern capital markets. Following decades of deliberation by various panels and committees, publication of the proposed Act by the Canadian Securities Transition Office evidences this government’s strong commitment to the establishment of a national securities regime and regulator. 

The case for regulation of capital markets at a national level is set out in the preamble to the Act. Among other things, the preamble highlights the need to be competitive and consistent, enhance the integrity and stability of the Canadian financial system, have a comprehensive and coordinated enforcement regime and promote Canada’s interests at a national and international level. While the intent is to create a harmonized federal scheme for securities regulation, provincial participation is voluntary and the Act will only apply to those jurisdictions that choose to take part in the federal scheme. As we discussed previously, the draft Act is only a proposal at this stage, and has been referred to the Supreme Court of Canada for a ruling as to its constitutionality.

Continue Reading...

CSA releases consultation paper on venture issuer regulation

On May 31, the Canadian Securities Administrators (CSA) released Multilateral Consultation Paper 51-403 Tailoring Venture Issuer Regulation, a product of the securities regulatory authorities of Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia and Saskatchewan. While Ontario and Quebec are not fully participating in this consultation, they are encouraging their market participants to review and comment on the proposals.  

The Consultation Paper is intended to "assess market interest in pursuing a more tailored approach to the regulation of the venture market" and seeks the views of stakeholders, exchanges, dealers and industry associations. Specifically, the Consultation Paper proposes consolidating and streamlining governance and continuous disclosure requirements in a new regulatory instrument that would apply only to venture issuers, replacing the relevant requirements currently found in various instruments.

The proposed new instrument would, among other things, replace the current requirement for separate annual financial statements and MD&A with an annual report, eliminate three and nine month interim financial statements and associated MD&A, introduce substantive corporate governance requirements, eliminate business acquisition reports and enhance material change reporting and permit prospectuses to contain only two years of historical financial statements.

The participating securities regulatory authorities are accepting written comments on the proposals until September 17, 2010. Additionally, consultation sessions will be held across Canada in order to gather further feedback.

SEC proposes consolidated audit trail system

Citing the lack of a central database containing comprehensive and readily accessible data regarding orders and executions, the U.S. Securities and Exchange Commission proposed a new rule on May 26 that would require SROs to establish a consolidated audit trail system. Under the new system, exchanges and FINRA, as well as their members, would be required to provide certain information to the central repository regarding each quote and order in a National Market System (NMS) security.

Such a consolidated system would be intended to: (i) provide regulators direct and timely access to uniform consolidated order and execution information for all orders in NMS securities from all participants across all markets; (ii) enable SROs to better fulfill their regulatory responsibilities to oversee their markets and members; and (iii) enable the SEC to better carry out its oversight of the NMS for securities.

The SEC is accepting public comments on the proposal for 60 days after its publication in the Federal Register.

IIROC proposes rule on personal financial dealing with clients

The Investment Industry Regulatory Organization of Canada (IIROC) today proposed a new rule intended to "clearly articulate that any personal financial dealing with clients, subject to limited exemptions, is considered inappropriate conduct, a conflict of interest and a violation of the general business conduct standards." Prohibited conduct would include receiving direct or indirect benefits or other considerations from clients (other than through a Dealer Member), entering into private settlement agreements with clients, lending money or borrowing money from clients, and having any control or authority over the financial affairs of clients. Amendments to the current Rule 18.14 were also proposed in order to clarify that outside business activities require disclosure to, and approval by, Dealer Members.

Comments on the proposals are being accepted by IIROC for 90 days from today's publication.

FINRA proposes enhanced oversight of firms' back offices

The U.S. Financial Industry Regulatory Authority (FINRA) released a Regulatory Notice on May 26 requesting comments on proposed rule amendments intended to enhance the oversight of broker-dealers' back office operations. The proposed amendments would create a registration category for operations professionals engaged in, or supervising, activities relating to sales and trading support and the handling of customer assets. A new qualification exam for operations professionals would be established as well as continuing education requirements. Comments on FINRA's proposal are being accepted until July 12, 2010.

Proposed federal Securities Act outlines framework for regulation of derivatives

Margaret Grottenthaler

The proposed federal Securities Act tabled by the federal government on May 26 establishes a framework for the regulation of exchange-traded and over-the-counter derivatives markets and their participants. Don’t expect to see a new regime too soon though. This legislation has not yet been introduced as a Bill but only laid before Parliament on a Ways and Means motion. The draft legislation has been referred to the Supreme Court of Canada to obtain a ruling as to whether it is within the legislative competence of the federal Parliament and will not be introduced until that question is resolved. Provinces are given the choice to opt into the federal scheme as well. Many provinces (not including Quebec and Alberta) have taken part in the process and would be expected to opt into the national scheme.

Continue Reading...

Finance Minister Flaherty announces national securities regulator

As we mentioned a few weeks ago, federal Finance Minister Jim Flaherty recently stated that legislation to create a national securities regulator was imminent. Earlier today, Minister Flaherty unveiled a draft federal Securities Act, which would create such a regulator and allow provinces and territories to opt into the new regime voluntarily. According to the Minister, the proposed regime will provide: (i) better and more consistent protection for investors across Canada; (ii) improved regulatory and criminal enforcement to better fight securities-related crime; (iii) new tools to better support the stability of the Canadian financial system; (iv) faster policy responses to emerging market trends; (v) simpler processes for businesses, resulting in lower costs for investors; and (vi) more effective international representation and influence for Canada.

As there are impending legal challenges on the constitutionality of the plan, however, the proposed Act has been concurrently referred to the Supreme Court for its opinion on whether the proposed Act is within the federal government's legislative authority.

The Canadian Securities Transition Office has stated that it will release a technical commentary on the proposed legislation in the coming weeks and will also deliver a transition plan to the Minister and participating jurisdictions by July 12, 2010. Meanwhile, we expect to provide a more detailed review of the proposed legislation next week.

IOSCO publishes Principles Regarding Cross-Border Supervisory Cooperation

In light of concerns that national financial regulations may not sufficiently prevent future financial crises, the Technical Committee of the International Organization of Securities Commissions (IOSCO) yesterday published a report entitled "Principles Regarding Cross-Border Supervisory Cooperation". The report considers how regulators can enhance cross-border cooperation so as to "better supervise the entities that they regulate that have expanded their operations across borders." Specifically, the report provides a set of principles intended to guide cooperative supervisory arrangements among international regulators.

Ontario reauthorizes publication of issuers in default of requirements

On May 18, Ontario's Bill 16, An Act to implement 2010 Budget measures and to enact or amend various Acts, received Royal Assent. Among other things, the Bill amends section 83 of the Securities Act to once again allow the Ontario Securities Commission (OSC) to publish a list of reporting issuers who are in default of any requirement of the Act or the regulations. Amendments to the Securities Act and the Commodity Futures Act also replace certain terms with comparable terms under International Financial Reporting Standards (IFRS).

Germany bans naked short selling

The Globe and Mail, among other media outlets, is reporting today that Germany has banned naked short selling of euro-denominated government bonds, credit default swaps based on the bonds and shares of the country's ten most important financial institutions. The ban, which apparently took effect at midnight, will run until March 31, 2011. According to Reuters, the move caught Germany's European Union colleagues off guard and elicited a particularly strong response from the French Finance Minister, who stated that France would not introduce a similar ban. Whether other EU countries follow suit, however, remains to be seen.

Code of Conduct for credit and debit card industry widely adopted

Minister of Finance Jim Flaherty announced yesterday the widespread adoption by major credit and debit card issuers, as well as payment processors, of the Code of Conduct for the Credit and Debit Card Industry in Canada. The Code is intended to increase transparency and disclosure by payment card networks and acquirers to merchants, provide merchants with the flexibility to encourage consumers to choose the lowest-cost payment option and allow merchants to choose which payment options they will accept. Much of the Code comes into effect as of August 16, 2010.

Regulators respond to market volatility

As regulators continue to investigate last Thursday's extreme market volatility, the Investment Industry Regulatory Organization of Canada (IIROC) has announced that it has re-priced or cancelled various trades occurring during the market slide. Various U.S. markets have also announced that they would cancel trades (see for example announcements from NYSE Arca and NASDAQ). Meanwhile, the Securities and Exchange Commission (SEC) announced yesterday that it has met with the leaders of the Financial Industry Regulatory AuthorityNASDAQ, BATS, Direct Edge, ISE and the CBOE, and that all parties have agreed on a structural framework for strengthening circuit breakers and handling erroneous trades.

Today, the SEC and Commodity Futures Trading Commission announced the formation of a joint committee to address "emerging regulatory issues", with the first item on the committee's agenda being a review of last Thursday's market events. Meanwhile, SEC Chairman Mary Schapiro testified before the Financial Services Committee's Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises this afternoon to summarize the events of May 6, provide an overview of the current market structure and discuss various regulatory tools to be considered "in determining how best to maintain fair and orderly financial markets and to prevent severe market disruptions in the future."

CFTC issues advisory regarding speculative position limits

On May 7, the U.S. Commodity Futures Trading Commission (CFTC) issued an Advisory to alert market participants regarding their "ongoing legal obligations to comply with speculative position limits." Specifically, the CFTC reaffirmed that such limits apply on an intraday as well as an end-of-day basis and that traders whose positions exceed the applicable speculative position limit "at any time during the day" (emphasis in text) are in violation of the pertinent regulations even if their positions are reduced below the limit by the end of the day.

TMX outlines objection to US-style short sale regulation

On May 3, TMX Group Inc., released a letter written to the Canadian Securities Administrators (CSA) outlining its position on the regulation of short sales in Canada in light of recent U.S. amendments on the subject.

Specifically, TMX recommended against adopting SEC-style amendments incorporating a price test trigger and stated that the "additional regulation of short sales in Canada is not warranted." In support of its views, TMX outlined findings from an analysis it performed on securities inter-listed on the TSX and a U.S. exchange. TMX found that on average, at least one inter-listed security would have triggered the SEC-style short sale circuit breaker every day. According to TMX, however, "it is highly unlikely that manipulative shorting occurs every day in one of the inter-listed securities." Thus, TMX urged the CSA "to take a decision on short sales that is contrary to the SEC's politically driven amendment to Reg SHO". Citing UMIR amendments to address failed trades and the strong real-time surveillance and enforcement capabilities of IIROC, TMX further outlined its support for "the removal of the short sale price test for all exchange-listed securities in order for Canadian participants to operate under one rule."

Finance Minister to soon send securities regulator bill to Supreme Court

Finance Minister Jim Flaherty is reportedly days away from seeing the completion of draft legislation to create a national securities regulator. According to press reports, Ottawa is planning to send the draft bill to lawmakers and the Supreme Court for a reference on its constitutionality within a few weeks.

CSTO releases report on investor panel roundtable

On April 30, the Canadian Securities Transition Office (CSTO) released a report summarizing the views of investor stakeholders on the topic of establishing an independent investor panel as part of a new national securities regulator. Issues for discussion as part of the roundtable included the potential mandate of the panel, the composition and appointment of panel members and how the panel should be funded.

While a "wide range of views" were shared during the discussions, the report identified a number of common themes that emerged. Such themes included an emphasis on clarity in defining the panel's mandate and the desire that there be transparency in the process of establishing an investor panel and its operation. The report did not, however, come to any conclusions and the CSTO stated that it will continue to consult on the issue with a view to ultimately providing recommendations to the Minister of Finance.

CSA issue update on terrorist financing reporting

The Canadian Securities Administrators (CSA) issued a staff notice on April 16 relating to the reporting requirements of registrants, exempt international dealers and exempt international advisers with respect to terrorist financing. The notice is intended to provide information on the new consolidated reporting form and the submission of monthly reports.

It is important to note that while there is some legal uncertainty as to the applicability of such reporting requirements to exempt international dealers and exempt international advisers, by issuing the staff notice the CSA is clearly stating the CSA view that exempt international firms should be submitting the monthly reports.

For firms that are required to file, there is now one consolidated form, whereas previously reporting requirements of federal laws relating to terrorist financing and those relating to United Nations sanctions were in two separate reporting forms. The reporting process has changed to allow the consolidated form to be submitted by email to a firm's principal regulator. IIROC members, however, are requested to use the forms issued by, and file those forms with, IIROC.

Eight Canadian securities commissions sign arrangement with Chinese regulator

On April 23, the Canadian Securities Administrators (CSA) announced the recent signing by eight members of the CSA of a Supervisory Cooperation Arrangement with the China Banking Regulatory Commission with respect to a program that allows Chinese institutional investors to invest pooled funds in approved overseas financial markets. According to Jean St-Gelais, Chair of the CSA, the arrangement "paves the way for Chinese commercial banks to conduct investments on behalf of their clients with Canadian-based financial institutions" in participating jurisdictions. The arrangement is currently in effect in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Quebec and Saskatchewan and, pending ministerial approval, is scheduled to take effect in Ontario on June 22, 2010.

Finance Minister suggests national securities bill to be ready in a month

It was reported yesterday that Canadian Finance Minister Jim Flaherty, speaking at a financial conference in Toronto on Wednesday, stated that a bill to create a national securities regulator will be ready in a month. According to the Minister, however, the bill will be referred to the Supreme Court of Canada for an opinion on its constitutionality before it is tabled in Parliament. As we discussed in March, the federal government's Budget 2010 set out a three-year target for the establishment of a federal securities regulator.

IIROC releases strategic plan

The Investment Industry Regulatory Organization of Canada (IIROC) recently released its Strategic Plan for 2010-2012. The plan describes IIROC's vision and values and sets out the challenges it faces in fulfilling its mandate. Specifically, the plan discusses the following goals: 

  1. Promoting a culture of compliance and high standards among those subject to IIROC's jurisdiction. This will include a reorganization of IIROC's rules to enhance comprehension, providing compliance examination findings and recommendations to members and undertaking periodic industry-wide compliance audits.
     
  2. Delivering effective, efficient and expert regulation. Projects that IIROC will undertake in pursuit of this goal include the implementation of a risk-based methodology for registration and completing its framework approach to IFRS.
     
  3. Maintaining market integrity by actively monitoring market structure developments and market-related events. IIROC states that it will reduce timelines to complete enforcement investigations and bring proceedings, clarify roles and relationships in order to strengthen the client/adviser relationship and continue to develop its policies respecting OTC and debt markets.
     
  4. Ensuring that it discharges its responsibilities in a cost-effective manner, which will include the implementation of an equitable Dealer and Marketplace Member fee model.
     
  5. Maintaining a confident and well-trained staff.

US Supreme Court rules on fiduciary duty of investment advisers

On March 30, the Supreme Court of the United States released its decision in the case of Jones v. Harris. The case considered the fiduciary duty imposed on mutual fund advisers by section 36 of the Investment Company Act of 1940 (ICA) with respect to the receipt of compensation for services. This particular issue has been the topic of recent judicial attention.

Ultimately, the Supreme Court accepted the basic formulation of the Gartenberg test, stating that "to face liability under §36(b), an investment adviser must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm's length bargaining." While the basic formulation of the test appeared to be relatively uncontroversial in this case, the parties disagreed on a number of points concerning its application. Thus, the Supreme Court provided guidance on a number of issues. Specifically, the Supreme Court stated that: 

  1. since the ICA requires consideration of all relevant factors concerning the fees charged, there is no categorical rule prohibiting comparisons between the fees charged by advisers to different types of clients. The weight to be allocated to such comparisons, however, depends on the circumstances and the ICA does not ensure fee parity between mutual funds and institutional clients;
     
  2. Courts should not rely too heavily on the fees charged by other advisers; and
     
  3. A court's evaluation of an investment adviser's fiduciary duty must take into account both procedure and substance. "Where a board's process for negotiating and reviewing investment-adviser compensation is robust, a reviewing court should afford commensurate deference to the outcome of the bargaining process." Where the board's process was deficient or the adviser withheld important information, however, a court may take a more rigorous look at the outcome.

Finding that the Seventh Circuit panel focused almost entirely on disclosure, the Supreme Court vacated the Circuit Court's decision and remanded the case.

The immediate decision's effect on mutual fund fees remains to be seen, and will ultimately depend on the interpretation given to the Supreme Court's findings by lower courts. Thus, the mutual fund industry will undoubtedly watch with interest as this case, and those like it, proceed through the lower courts.

BC passes amendments to Securities Act

As discussed in our post of April 7, the B.C. government recently introduced amendments to various acts for the purpose of, among other things, regulating credit rating agencies. The amendments have now received Royal Assent. While the implementation date of changes to the B.C. Securities Act is subject to regulation, various amendments to the Financial Institutions Act take effect at the end of 2010.

SEC and IOSCO release proposals regarding asset backed securities

On April 7, the U.S. Securities and Exchange Commission (SEC) announced proposals to revise the rules respecting asset-backed securities in order to "better protect investors in the securitization market." Specifically, the proposals would make changes to the offering process, disclosure and reporting for asset-backed securities (ABS). The changes are described by the SEC as being comprehensive and imposing new burdens in order to "provide investors with timely and sufficient information...reduce the likelihood of undue reliance on credit ratings, and help restore investor confidence in the representations and warranties regarding the assets." Comments on the proposals are being accepted by the SEC for 90 days after publication of the proposals in the Federal Register.

Meanwhile, the International Organization of Securities Commissions (IOSCO) released a report yesterday entitled "Disclosure Principles for Public Offerings and Listings of Asset Backed Securities". The report is intended to "provide guidance to securities regulators who are developing or reviewing their regulatory disclosure regimes for public offerings and listings of asset-backed securities (ABS)." Specifically, the report outlines the information that should be included in any offer or listing document for a publicly offered or listed ABS.

BC adopts exemption from filing period respecting changes to fees

On March 22, the British Columbia Securities Commission (BCSC) announced the adoption of BC Instrument 21-504. The Instrument provides recognized exchanges with an exception from the requirement to file, within the prescribed 45-day period, changes to information previously provided in 21-101F1 Exhibit N (fees), provided they file, in the manner set out in 21-101F1, the required amendment to Exhibit N at least seven business days before implementing the change.

BC introduces amendments to Securities Act

On March 25, the British Columbia government introduced Bill 6, the Finance Statutes Amendment Act, 2010 in the provincial legislature. Among other things, the Bill would amend the B.C. Securities Act so as to allow for the regulation of credit rating agencies by British Columbia Securities Commission and, according to the Ministry of Finance, "harmonize registration legislation across Canada relating to point-of-sale disclosure for mutual funds and segregated funds". Meanwhile, amendments to the Financial Institutions Act would "enhance the regulatory tools and framework for the financial services sector."

Ontario legislative committee releases review of OSC

On March 29, 2010, the Ontario legislature's Standing Committee on Government Agencies released a report reviewing the operations of the Ontario Securities Commission (OSC). The Committee received testimony from staff and members of the OSC and various stakeholders and ultimately recommended, among other things, that:

  • In considering the OSC's response to the ABCP crisis, the Ministry of Finance review the scope of the OSC's public interest jurisdiction;
  • The  province establish a dedicated capital markets crime unit to investigate and prosecute capital market misconduct;
  • The government give priority to legislative amendments intended to strengthen regulatory enforcement;
  • In order to better protect investors, the OSC be given the power to make restitution orders; and
  • The OSC review the potential for conflict of interest between the regulatory and commercial functions of the TSX.

In response to the report's release, the OSC stated that it intends to study the Committee's recommendations carefully.

Ontario approves Rule amendments respecting fees

As we mentioned in our post of January 22, the Ontario Securities Commission (OSC) recently proposed amendments to OSC Rule 13-502 Fees and OSC Rule 13-503 (Commodity Futures Act) Fees. Pursuant to their recent approval by the Minister of Finance, the Rule amendments came into force earlier this week, on April 5.

IIROC publishes second quarter 2010 circuit breaker levels

On April 1, the Investment Industry Regulatory Organization of Canada (IIROC) published a notice 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 second quarter of 2010 as 1,050 points, 2,150 points and 3,200 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%) - 2,400 points and Level 3 (30%) - 3,600 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.

SEC publishes staff views on no-action requests by issuers to suspend reporting obligations

The U.S. Securities and Exchange Commission published a staff legal bulletin on March 15 providing the views of its Division of Corporation Finance respecting the circumstances under which issuers may suspend their reporting obligations under section 15(d) of the Securities Exchange Act of 1934 by relying on Rule 12h-3. Citing the routine nature of no-action requests by issuers, the large body of no-action precedent and the guidance in the bulletin, the Division is of the view that, on a going-forward basis, issuers that fit within the situations identified by the bulletin and that satisfy the relevant conditions do not need a no-action response before filing the applicable form to suspend its section 15(d) reporting obligations.

FSA announces new rules on adviser commissions

The U.K. Financial Services Authority (FSA) announced new rules last week intended to improve the clarity respecting the costs charged by investment advisers. Specifically, as of 2011, firms will need to be upfront with respect to the costs of their services and will no longer be able to embed the cost of their advice in the cost of a product. Further, firms will not be permitted to accept commissions for recommending specific products. According to FSA director Sheila Nicoll, “[t]here is a need to reconnect the adviser and client, where one pays for the services of another, and without the distraction of commission. Only then can consumers have real confidence and trust in the advice they are receiving.”

MFDA releases bulletin reviewing compliance deficiencies

On March 22, the Mutual Fund Dealers Association of Canada (MFDA) released a bulletin in which it discussed the "significant financial compliance deficiencies" identified during on-site examinations of its member firms. Specifically, the bulletin identified the following serious deficiencies: (i) incorrect margin rate applied to securities owned; (ii) securities not held at acceptable securities locations; (iii) incomplete reporting on Form 1; (iv) trust bank accounts not reconciled to back office system; and (v) nominee name client assets not reconciled to third party information on a monthly basis. According to the MFDA, such deficiencies are often "a result of a firm not adequately managing or considering the capital implications of significant changes in their business".

Meanwhile, an MFDA bulletin released on the same day reviewed common deficiencies identified during MFDA staff's review of auditor working paper files. Financial audits of MFDA members occur in accordance with Rule 3.5.1(b) and the MFDA intended the bulletin "to enhance awareness and understanding of the special audit requirements for external auditors".

U.S. Senate committee introduces financial stability bill

Earlier this month, U.S. Senator Chris Dodd, Chairman of the Senate Committee on Banking, Housing, and Urban Affairsunveiled the "Restoring American Financial Stability Act of 2010". According to Senator Dodd, the bill will (i) end "too big to fail" bailouts; (ii) create a strong and independent consumer protection watchdog; (iii) create an early warning system; and (iv) bring transparency and accountability to "exotic instruments" like hedge funds and derivatives. Of particular note, the bill also contains provisions regarding executive compensation (Subtitle E, beginning on page 868) and corporate governance (Subtitle G, beginning on page 895). A summary of the proposed legislation was also released.

AMF Extends Temporary Blanket Decision on Derivatives

The Autorité des marchés financiers (the "AMF", Quebec’s financial services regulator) announced today that the temporary exemption provided under its February 1, 2009 blanket decision from the derivatives dealer and adviser registration requirements under the Derivatives Act (Quebec) (the "Act") for specified derivatives activities carried out solely with “accredited investors” (as defined under National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"), will remain available until September 28, 2010. Prior to this announcement, the temporary exemption had been set to expire on March 27, 2010. The exemption remains available subject to the following conditions:

  1. the derivatives activities must be carried out solely with “accredited investors” in accordance with the conditions set forth in NI 45-106 (including the filing of a report under Part 6); and
     
  2. the activities must relate only to certain specified categories of derivatives, including:

    1. an option or a negotiable futures contract pertaining to securities, or a Treasury bond futures contract;
    2. an option on a commodity futures contract or financial instrument futures contract; or
    3. commodities futures contracts, financial futures contracts, currencies futures contracts and stock indices futures contracts.

The AMF also announced that the corresponding exemption from the derivatives qualification rules under the Act will continue to remain available for the time being and that the AMF will advise market participants of any changes to this exemption.

OSC approves MFDA rule amendments regarding payment of commissions

The Ontario Securities Commission (OSC) announced today that it has approved amendments to MFDA Rule 2.4.1 to allow Approved Persons of MFDA Member firms to have remuneration from the Member paid directly to an unregistered corporation, subject to certain conditions. The final version of the amendments include changes made since their initially publication for comment in June 2009.

IIROC releases proposed amendments to rules concerning business conduct and client accounts

Earlier today, the Investment Industry Regulatory Organization of Canada (IIROC) released proposed amendments to its rules respecting business conduct and client accounts. Specifically, proposed Rule 3100 - Business Conduct would consolidate various current rules relating to business conduct and impose on Dealer Members a duty to use due diligence to ensure orders and recommendation are within the bounds of good business practice. Meanwhile, proposed Rule 3200 - Client Accounts would also consolidate various rules and impose responsibilities on Dealer Members with respect to, among other things, client identification, account information, discretionary trading and conflicts of interest. A table of concordance was also released by IIROC, which is accepting comments on the proposals for 90 days.

OSC releases revised annual statement of priorities

The Ontario Securities Commission (OSC) today published a revised Statement of Priorities for the financial year ending March 31, 2011. The OSC initially released a draft Statement of Priorities in December 2009, and the revised version includes changes made in consideration of public comments received. Specifically, the changes to the draft publication include (i) a reference to the creation of an independent panel focusing on investor issues; and (ii) a new initiative to signal the OSC's intention to direct more resources to the regulation of OTC derivatives.

OSC notice sets out staff's regulatory approach to clearing agency recognition

The Securities Act (Ontario) is scheduled to be amended as of March 1, 2011, to include a new section 21.2(0.1), which will prohibit clearing agencies from carrying on business in Ontario unless they are recognized by the OSC or receive an exemption from the recognition requirement.  The term “clearing agency” is defined in the Act as a person or company that,

(a) acts as an intermediary in paying funds or delivering securities, or both, in connection with trades and other transactions in securities,

(b) provides centralized facilities for the clearing of trades and other transactions in securities, including facilities for comparing data respecting the terms of settlement of a trade or transaction, or

(c) provides centralized facilities as a depository of securities,

but does not include,

(d) the Canadian Payments Association or its successors,

(e) a stock exchange or a quotation and trade reporting system,

(f) a registered dealer, or

(g) a bank, trust company, loan corporation, insurance company, treasury branch, credit union or caisse populaire that, in the normal course of its authorized business in Canada, engages in an activity described in clause (a), but does not also engage in an activity described in clause (b) or (c).

Continue Reading...

CSA issue orders exempting registrants from certain provisions of NI 31-103

 PDF Version 

On February 26, 2010, members of the Canadian Securities Administrators (CSA) each issued omnibus/blanket orders in response to applications requesting exemptions from certain provisions of National Instrument 31-103 Registration Requirements and Exemptions (31-103).  31-103, together with amendments to related instruments and policies, came into effect on September 28, 2009 (the Effective Date). Notice of these orders was provided under CSA Staff Notice 31-315 Omnibus/Blanket Orders exempting registrants from certain provisions of National Instrument 31-103 Registration Requirements and Exemptions, which was also published on February 26, 2010. The orders are summarized below.

Continuation of transition/grandfathering provisions for registrants adding jurisdiction

Each regulator issued an order that provides a person or company adding a jurisdiction to his, her or its registration, with the benefit of certain grandfathering and transition provisions provided under Part 16 of 31-103 in that additional jurisdiction.  Specifically, those grandfathering and transition provisions that deal with proficiency, capital, insurance, relationship disclosure information, referral arrangements, dispute resolution service and client statement requirements were included in the order. To rely on the order, the registrant must: (i) have been continuously registered in a jurisdiction in Canada since the Effective Date; (ii) remain registered in that jurisdiction during its reliance on the order; (iii) be exempt under the relevant section of Part 16 in that jurisdiction; and (iv) register, after the Effective Date, in the same category of registration (and in the case of an individual, with the same sponsoring firm) in an additional jurisdiction.

Continue Reading...