Legislation

Abstract

Proposed National Instrument, Forms 54-101F1 to 54-101F8, the proposed Companion Policy and, in Ontario, the proposed Implementing Rule, are a reformulation of National Policy Statement No. 41, Communication with Beneficial Owners of Securities of a Reporting Issuer. The CSA have also issued proposed National Instrument 54-102, Supplemental Mailing List and Interim Financial Statement Exemption, which replace the provisions of NP41 and associated rules and blanket orders pertaining to supplemental mailing lists.

Procedures have been included to permit reporting issuers to obtain a list of beneficial owners of their securities who do not object to the disclosure of their names and other information to issuers (called non-objecting beneficial owners (NOBOs) in the proposed National Instrument); this will permit issuers to send securityholder materials directly to NOBOs. Reporting iss uers may also choose to continue to distribute materials to NOBOs indirectly through intermediaries.

Proposed National Instrument 54-102 represents a reformulation of the portions of NP41 that pertain to supplemental mailing lists. It provides exemptive relief from the requirement to send interim financial statements to its registered holders for reporting issuers that send interim financial statements to the persons or companies on a supplemental mailing list established and maintained under the proposed National Instrument.

Proposed Documents Would Replace National Policy 41

Proposed National Instrument, Forms 54-101F1 to 54-101F8, the proposed Companion Policy and, in Ontario, the proposed Implementing Rule, are a reformulation of National Policy Statement No. 41, Communication with Beneficial Owners of Securities of a Reporting Issuer. The CSA have also issued proposed National Instrument 54-102, Supplemental Mailing List and Interim Financial Statement Exemption, which replace the provisions of NP41 and associated rules and blanket orders pertaining to supplemental mailing lists.

The proposed National Instrument differs from NP41 in a number of significant wa ys. Some examples are:

Procedures have been included to permit reporting issuers to obtain a list of beneficial owners of their securities who do not object to the disclosure of their names and other information to issuers (called non-objecting beneficial owners (NOBOs) in the proposed National Instrument); this will permit issuers to send securityholder materials directly to NOBOs. Reporting iss uers may also choose to continue to distribute materials to NOBOs indirectly through intermediaries.

The scope of materials that a beneficial owner may decline to receive has been n arrowed from NP41. Under the proposed National Instrument, a beneficial owner can decline to receive proxy-related materials for meetings at which only routine business is to be conducted or non-proxy-related materials not required by law to be sent to registered holders.

Unlike NP41, reporting issuers will no longer be able to override the election of beneficial owners who decline to receive certain materials.

The proposed National Instrument recognizes that securities may be held through a multi-layered structure, in which there may be several layers of intermediaries between a share register and a beneficial owner; the proposed National Instrument allows a reporting issuer to deal only with the intermediary that is shown on the register or that is a participant in a depositary.

A specific electronic format is mandated for intermediaries to use in sending NOBO lists to reporting issuers based upon a current common industry format.

NOBO lists can be used by reporting issuers and other persons or companies for any matter relating to the affairs of the reporting issuer, subject to specified terms and conditions similar to those imposed by Canadian corporate law for the use of shareholder lists.

The time periods specified in NP41 for a reporting issuer to provide a notification of meeting and record dates to depositaries, securities regulatory authorities and stock exchanges, and to commence an intermediary search (which were each subject to an automatic waiver) have been reduced. Notification of meeting and record dates must be sent, and an intermediary search commenced, a minimum of 8 and 5 business days, respectively, before the record date for notice of the meeting. However, the proposed Companion Policy cautions issuers that they must plan the timing of these preliminary steps to ensure intermediaries actually can provide the required inf ormation in time to send materials. Longer time periods will be normal.

The deadline for a reporting issuer to deliver proxy materials in bulk to interm ediaries has been reduced from 33 days in NP41 (subject to an automatic waiver) to a minimum of 21 calendar days plus 3 business days before the meeting.

The supplemental mailing list requirement for exemption from sending interim financial statements to securityholders is continued but has been moved to a separate National Instrument (54-102).

Proposed National Instrument re Supplemental Mailing List

Proposed National Instrument 54-102 represents a reformulation of the portions of NP41 that pertain to supplemental mailing lists. It provides exemptive relief from the requirement to send interim financial statements to its registered holders for reporting issuers that send interim financial statements to the persons or companies on a supplemental mailing list established and maintained under the proposed National Instrument.

For further information, please refer to the February 27, 1998 OSC Bulletin.

Basle Committee Releases Documents

The Basle Committee on Banking Supervision (Basle Committee), the International Organization of Securities Commissions (IOSCO) and the International Association of Insurance Supervisors (IAIS) have issued consultation documents prepared by the Joint Forum on Financial Conglomerates (Joint Forum) on the supervision of financial conglomerates.

The Joint Forum was established in early 1996 under the aegis of the Basle Committee IOSCO and IAIS to take forward the work of a predecessor group, the Tripartite Group, in examining supervisory issues relating to financial conglomerates. The Joint Forum is comprised of an e qual number of senior bank, insurance and securities supervisors representing each supervisory constituency. Thirteen coun tries are represented in the Joint Forum.

Public Forum on NETS

The Alberta, British Columbia, Quebec, Ontario, and Saskatchewan Securities Commissions will be holding a public forum to discuss the operation of NETS, the Non-Self Regulatory Organization Electronic Trading Systems.

For further information, please see Notice 22-701 at P.172-533 in Volume 2 of the Canadian Securities Law Reporter. British Columbia

Hold Period for Securities Issued Under Section 74(2)(18)

The Commission has issued BOR 98/1 relating to trades made by an issuer in a sec urity of its own issue as consideration for the acquisition of mining, petroleum or natural gas properties. BOR 98/1 has been reproduced in Volume 2 of the Canadian Securities Law Reporter at P.222-282. The new blanket order supersedes BOR 95/19, which is revoked; for further information, please refer to BOR 98/2 at P.222-283.

Commission Members Appointed

Joan Brockman and Roy Wares have been appointed as members of the Commission. Newfoundland

Ontario Securities Commission To Accept Insider Reports

The Director of Securities has issued a blanket order designating the OSC for th e purpose of accepting insider reports. The blanket order, dated February 19, 19 98, has been reproduced at P.371-039 in Volume 3 of the Canadian Securities Law Reporter. Ontario

Strip Bond Information Statement Fee Increased

Under an amendment to the Securities Regulation, a proposed strip bond information statement submitted to the Director for acceptance under Rule 91-501 must be accompanied by a fee of $500. The amendment has been incorporated in Volume 3 of the Canadian Securities Law Reporter at P.453-955.

New Policy re Cease Trading Orders

New OSC Policy 57-602, Cease Trading Orders--Applications for Partial Revoc ation to Permit a Securityholder to Establish a Tax Loss, replaces OSC Policy Statement No. 2.9, Cease Trading Orders--Applications for Partial Revocation to Permit a Securityholder to Establish a Tax Loss for Income Tax Purposes, effective February 24, 1998. The changes to Policy 2.9 are of a non-substantive nature.

The purpose of the Policy is to advise securityholders of an issuer subject to a cease trading order that the Commission may be prepared to vary the cease trading order to permit a disposition solely for the purpose of that securityholder establishing a tax loss. The Policy also states that if the disposition is by way of gift, the disposition is not a trade within the meaning of the Act, although it may be viewed as a disposition for the purposes of the Income Tax Act.

The Policy has been reproduced in Volume 3 of the Canadian Securities Law Reporter at P.472-106.

Strip Bonds Rule Approved

On February 23, 1998, the Minister of Finance approved Rule 91-501: Strip Bonds. The Rule will come into force on May 1, 1998.

Mutual Fund Sales Practices Rule Approved

National Instrument 81-105, Mutual Fund Sales Practices was approved on March 27 , 1997. The Rule and Companion Policy 81-105CP will come into force on May 1, 19 98.

Uniform Act Policy 2-11 Rescinded

The Canadian securities regulatory authorities in the provinces of Ontario, Albe rta, British Columbia, Manitoba and Saskatchewan have rescinded Uniform Act Policy No. 2-11, Policy Statement in Connection with Applications to the Commission for an Order Under Section 121(3) of the Securities Act, 1966 (Ontari o) (now section 79(a) [80(a)] of the Act or section 173(3) of the Business Corporations Act, 1970 (Ontario)) (the Policy).

Rule Requires Fees be Paid to Commission

Since the coming into force of the relevant sections of the Job Growth and Tax Reduction Act (Ontario), the Commission has become a self-funded organization. Currently, all fees are paid to the Minister of Finance in accorda nce with Schedule 1 of the Regulation to the Act. The Commission has issued Rule 13-501 to require that all fees payable under Ontario securities law be paid to the Ontario Securities Commission.

The Rule has been reproduced at P.480-056 in Volume 3 of the Canadian Securities Law Reporter; a related notice appears at P.478-056.

Exceptions to Conflict Rules in Sale of Mutual Funds

Proposed Rule 33-502 provides exemptions to the conflict of interest requirements set out in Part XIII of the Regulation under the Securities Act for fully registered dealers for the trading of securities of associated mutual funds that is equivalent to the relief provided to mutual fund dealers under subsection 230(2) of the Regulation and to exempt registrants from the prohibitions in subsection 224(1) of the Regulation in respect of the distribution of mutual fund securities. The proposed Rule is derived from the Blanket Order, In the Matter of Mutual Fund Securities, (1991), 14 OSCB 3763, now a deemed rule, which it replaces.

The proposed Rule exempts fully registered dealers from the provisions of Part X III of the Regulation that require dealers to make disclosure to investors by way of a statement of conflict policies or in th eir trade confirmations, advertising or recommendations for associated mutual fu nd securities. Under the proposed Rule, mutual fund securities are associated with the dealer if the fund is dealer managed by the dealer or an affiliate of t he dealer manager.

Statement of Priorities for 1998

The Commission has published its statement of priorities for the fiscal year end ing March 31, 1999. The 1998-1999 year will be one of transition to the self-fun ded status, and the resources associated with self-funding will be put in place over a two-year period. In 1998-1999, a significant number of additional staff in the Market Operations and Enforcement Branches will be hired.

During the first transition year, resources will be focussed on the following pr iorities:

developing the infrastructure required to effect the transition to a self-funded agency and recruiting additional staff

harmonizing regulatory standards and completing memoranda of understanding in su pport of mutual reliance initiatives with other securities regulators in Canada

substantially completing the reformulation process

finalizing responses to the TSE Report on Fragmentation and the Small Business Financing Task Force Report

develop a program of oversight for self-regulatory organizations, including the new SRO for mutual fund dealers

develop requirements for an integrated disclosure system

develop and implement new investor education programs

begin a review of fees

Glorianne Stromberg Re-appointed

The Commission recently announced the re-appointment of Glorianne Stromberg as a Commissioner.

Proposed Rule re Dividend or Interest Reinvestment Plans

Proposed Rule 45-502 exempts certain trades of securities under dividend or inte rest reinvestment plans and the cash payment options of dividend or interest reinvestment plans and stock dividend plans. As a result of comments received on the proposed Rule, the Commission has amended the proposed Rule and is re-publi shing it for comment.

For further information, please refer to the February 27, 1997 OSC Bulletin.

David Brown New OSC Chair

The advisory committee on selecting the new Chair of the Ontario Securities Commission has unanimously recommended David A. Brown, Q.C. Brown is a senior corporate law partner of Davies, Ward & Beck, where he has been a partner for 28 years.

For further information, please contact Rob Mitchell at [phone], or Elliott Katz at [phone]. Saskatchewan

Duplicative Filings for Finance Companies

The Commission has issued General Ruling/Order 51-902 to exempt finance companies from certain disclosure requirements of The Securities Act, 1988. It has been reproduced in Volume 4 of the Canadian Securities Law Reporter at P.622-047. Toronto Futures Exchange

By-law Re Dual Trading Restrictions Proposed

Proposed By-law 61 permits a member or approved person to purchase or sell for his or her own account TFE Index Futures Contracts while holding a clie nt order which is executable if the client has granted express consent to permit the member or approved person to trade ahead of the client.

Implementation of the By-law is subject to approval by the Ontario Securities Commission following public notice and comment. Comments are sought on the By-law. For further information, please refer to Notice 98-19, dated March 19, 1998.

President Appointed

On March 3, 1998, Stephen Rive was appointed President of the Exchange. Alberta Stock Exchange

Manual Revised

The Policies and Procedures Manual has been revised. The changes have been incorporated in Volume 2 of the Canadian Stock Exchanges Manual, starting at P.2100-001. Montreal Exchange

List of Fees Revised

The List of Fees has been revised; the changes have been incorporated in Volume 2 of the Canadian Stock Exchanges Manual at P.3500-501. For further information, please contact Mrs. Louise Laflamme, Director, Accounting, at [phone], extension 258.

Monthly Financial Report Regulatory Filing Deadline Changed

Article 7155 provides that all members of the Exchange submit a Monthly Financial Report (MFR) prepared in accordance with generally accepted accounting principles and the Instructions of Policy C-3 before the last business day of the month after the date of the report. However, members having a head office outside of Montreal had an additional delay because the postmark was considered as the reception date. Also, article 7010 provided that a member who triggered one of the early warning signal levels, indicating the precariousness of its capital, must submit the MFR no later than the fifteenth business day following the end of the month.

Articles 7010 and 7155 have been amended to reduce filing deadlines for the MFR so that any financial problems can be detected more rapidly. The filing deadline of the MFR will be 20 business days following the end of the month, when no early warning signal levels have been triggered, and 10 business days after the end of the month for members classified in level 1 or 2 if the early warning signal. Furthermore, the note regarding members whose head office is outside Montreal has been deleted. The obligation to submit the MFR through electronic mail makes the additional delay of the postal service irrelevant.

The amendments have been incorporated in Volume 2 of the Canadian Stock Exchanges Manual at P.4100-210 and 4100-217. For further information, please contact Sylvain Racine, Supervisor, Margin and Capital Policies, Member Regulation, at [phone], extension 418.

Notional Government of Canada Bond Futures Contracts Margin Offsets

Currently, article 7204A of the Rules specifies the securities in Groups I to V of article 7204 that can be offset. Article 7204 allows the offset of an inventory position in Government of Canada bonds or debentures maturing in three to 11 years and classified as Group I securities, with a five-year (CGF) o r 10-year (CGB) notional Government of Canada Bond futures contract listed on the Exchange. However, no margin offset is allowed between a CGB/CGF futures contract and a provincial, municipal or corporate bond and this, even though it was demonstrated that a high degree of correlation exists between them.

Consequently, amendments were made to article 7204A to allow the offset of provincial, municipal and corporate bonds in Canada maturing in three to 100 years and classified in Groups II, III and V under article 7204 with a CGF or CGB notional Government of Canada Bond futures contract listed on the Exchange.

The amendments have been incorporated in Volume 2 of the Canadian Stock Exchanges Manual at P.4100-252 and 4100-253. For further information, please contact Sylvain Racine, Supervisor, Margin and Capital Policies, Member Regulation, at [phone], extension 418.

Three-Month Canadian Bankers' Acceptance Futures (BAX) Enhanced

Amended articles 6804 and 15501 will provide BAX market participants with:

Near term maturities: The addition of two near term contracts expiring in months other than the standard quarterly expirations will provide market participants with a more precise hedging tool to manage their short term interest rates exposure. On March 16, 1998, the April and May serial futures will be listed in addition to the standard BAX June quarterly expiration. Two serial contracts will be listed at all times so that there will always be three consecutive front months listed.

A third year of quarterly contracts: The listing of a third year of quarterly contracts will provide market participants with an extended vehicle across the yield curve. On March 17, 1998, the additional green contract months will refer to the quarterly expirations on June 2000, September 2000, December 2000, and March 2001.

Enhanced strip facilities: A strip is the simultaneous purchase or sale of a series of BAX futures contracts. Market participants will now be permitted to assign equal or different net price changes to each individual contract of a strip as long as they average out to the agreed-upon price of the strip. Both counterparties must agree to the assigned price allocations.

The amendments have been incorporated in Volume 2 of the Canadian Stock Exchanges Manual at P.4500-698 and 4500-171. For further information, please contact Leon Bitton, Director, Research and Development, at [phone].

Year 2000

Policy I-16 provides that every issuer having securities listed on the Exchange shall make disclosure, in all annual reports sent to shareholders from April 1, 1998 to December 31, 1999, of any material information concerning the information systems issues, related business implications, and uncertainties for the issuer resulting from the year 2000 century change. Any material remedial action that the issuer is taking shall also be disclosed.

The Policy has been reproduced in Volume 2 of the Canadian Stock Exchanges Manual at P.5000-016. For further information, please contact Marie-Anne Selbach, Director, Corporate Services, at [phone]. Status of Bills

B.C.

Chapter 29 of The Miscellaneous Statutes Amendment Act (No. 3), 1997 amends the Company Act. Assented to on July 28, 1997 but not yet in force.

Manitoba

Chapter 26 of The Corporations Amendment Act was assented to June 28, 1997; in force on proclamation.

Chapter 73 of The Commodity Futures and Consequential Amendments Act was assented to November 19, 1996; in force on proclamation.

Quebec

Bill 187, An Act to again amend the Securities Act, received first reading on December 11, 1997 and second reading on December 19, 1997. Don't Throw Your April LegalWorks CD Away!

Each year, customers using any product in the LegalWorks electronic library will be given a CD that will not expire after the usual 90-day period. The purpose of this is to provide a snapshot of the information as it exists at a certain time. The April update is your annual arch ival collection and is so marked for easy recognition. Please remember to retain it for your records.

Cut-off Dates for New Material

Alberta Securities Commission Bulletin, dated February 27, 1998

British Columbia Securities Commission Weekly Summary 98:12, dated March 20, 1998

The Ontario Gazette, dated March 21, 1998

Ontario Securities Commission Bulletin Volume 21, Issue 12, dated March 27, 1998

Saskatchewan: General Ruling/Order 51-902, dated February 23, 1998

Alberta Exchange revisions to the Policies and Procedures Manual, dated October 1997.

Toronto Futures Exchange Circular TF98-14, dated March 6, 1998, and TF 98-19, dated March 19, 1998

Montreal Exchange Circulars 025-98, dated February 16, 1998; 028-98, dated February 18, 1998; 036-98, dated March 3, 1998, 042-98, dated March 11, 1998; and 043-98, dated March 11, 1998.