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The National Instrument and Companion Policy are slated to come into force on Ma y 1, 1998. The National Instrument is expected to be adopted as a rule in B.C., Alberta, Manitoba, Ontario, and Nova Scotia, a Commission regulation in Saskatchewan, and as a policy in all other CSA jurisdictions. The Companion Policy is expected to be implemented as a policy in all CSA jurisdictions.
Proposed National Instrument 44-101, Forms, Companion Policy, and Implementing Rule 44-801 will replace National Policy No. 47, which deals with the Prompt Offering Qualification System (the POP system), and those provisions of National Policy No. 1 that deal with clearance procedures for initial Annual Information Forms (AIFs) and short form prospectuses. In Ontario, the Rules, In the Matter of the Prompt Offering Qualification System, (1997), 20 OSCB 1217 and In the Matter of National Policy 47 and the Sol icitation of Expressions of Interest, (1997), 20 OSCB 1217, expire on the coming into force of the proposed National Instrument. The POP system operates through the incorporation by reference in a short form prospectus of an issuer's AIF, information circular, financial statements and material change reports.
Proposed National Instrument 33-101 imposes conditions to protect clients' assets when dealers act as administrators of self-directed RRSPs, RESPs, or RRIFs. The proposed National Instrument imports the requirements of the Joint Regulatory Financial Questionnaire and Report, which prescribes acceptable trustees and securities locations. It requires that the trustee remain primarily liable to planholders, even though the dealer is acting as administrator. It prescribes the administrative functions that the dealer must undertake, such as disclosure, record keeping, and maintaining control over plan securities and safekeeping. The proposed Instrument also prescribes the timing for delivery of cash balances from plan accounts to the trustee and prohibits agreements to set-off. Finally, the proposed Instrument requires dealers and others to receive necessary regulatory approvals before the dealer becomes an administrator of a plan.
Subscribers will receive supplementary updates to the Canadian Securities Law Reporter and the Canadian stock Exchanges Manual, Reports 386A an d 49A, respectively. These reports will not be accompanied by a newsletter. Canadian Securities Administrators
National Instrument Curbs Mutual Fund Sales Practices
National Instrument 81-105 imposes mandatory restrictions on certain sales practices in the mutual fund industry in Canada.
Companion Policy 81-105CP points out that the National Instrument establishes only minimum standards of conduct for industry participants.
The National Instrument permits payment of trailing commission, provided, among other things, that the commission does not increase based upon increases in the value of the amount of securities of a mutual fund sold. This would prevent mutual fund companies from refusing to pay trailing commissions if the amount or value of the securities is lower than a specified threshold.
The National Instrument and Companion Policy are slated to come into force on Ma y 1, 1998. The National Instrument is expected to be adopted as a rule in B.C., Alberta, Manitoba, Ontario, and Nova Scotia, a Commission regulation in Saskatchewan, and as a policy in all other CSA jurisdictions. The Companion Policy is expected to be implemented as a policy in all CSA jurisdictions.
The National Instrument replaces two CSA notices, Mutual Fund Sales Incentives and Mutual Fund Sales Incentives--Point of Sale Disclosure Statement, which are revoked the date the National Instrument comes into force. The National Instrument and Companion Policy have been reproduced in Volume 1 of the Canadian Securities Law Reporter at P.1003 and 1003a.
CSA Notice re Year 2000 Challenge
The CSA has issued a notice regarding matters that a reporting issuer should con sider in assessing the nature and extent of its disclosure obligations concerning the year 2000 issue. It is essential that companies address the problems in a timely manner. Despite the importance of the issue, a recent Statistics Can ada survey of 2,000 Canadian companies indicates that less than half of all Canadian firms have taken action to prepare for this problem. Staff are therefore reminding reporting issuers to consider their disclosure obligations in the context of both continuous disclosure and offerings of securities by way of prospectus.
The CSA Notice has been reproduced in Volume 1 of the Canadian Securities Law Reporter at P.80-178.
National Application System--Request For Comments
The mandate of the Task Force on Operational Efficiencies was to prioritize operational efficiencies that would result in streamlining securities regulation. One of the three major recommendations made by the Task Force was to encourage the CSA to extend the concept of a designated jurisdiction to all prospectus filings, mutual fund filings, dealer registration, continuous disclosure filings, applications for discretionary relief, investigations, and hearings.
The CSA has decided to extend mutual reliance to a number of operational areas. Mutual reliance means that, in exercising discretion under securities regulation, a decision maker in a particular jurisdiction relies primarily on the analysis and review of staff of another jurisdiction for certain filings made in more than one jurisdiction in Canada.
The National Application System Committee was established by the CSA to develop the National Application System for the treatment of applications for discretionary relief made in multiple jurisdictions using a mutual reliance concept.
Under this System, an application will be drafted with reference to the requirem ents of a principal jurisdiction. The application, with the applicable fees will be sent to the principal jurisdiction and other jurisdictions where relief is required. Once a determination has been made by all Participating Jurisdictions, the principal jurisdiction will issue a Decision Document.
Proposed Multijurisdictional Instrument re Underwriting Conflicts
Proposed Multi-Jurisdictional Instrument 33-105 and Companion Policy 33-105CP re gulate distributions of securities in which the relationship between the issuer or selling securityholder of the securities and the registrant acting as underwriter raises the possibility that the registrant will be in an actual or perceived position of conflict. The proposed Instrument imposes certain disclosure requirements and, in some cases, the requirement that an independent dealer participate in the distribution.
Because this Instrument is not, at this time, proposed for adoption in all of the jurisdictions of the CSA, it is called a Multi-Jurisdictional Instrument rather than a National Instrument. However, as this Instrument is being adopted in a number of jurisdictions, it is numbered as a National Instrument. National Instrument 14-101 Definitions will be amended to apply to both National Instruments and multi-jurisdictional instruments.
Further developments will be reported in this newsletter.
Proposed National Policy re Breach of Requirements of Other Jurisdictions
Proposed National Policy 34-201 states that a breach by the applicant or registrant of securities legislation, including regulations and rules, directions or policies, or self-regulatory organization regulatory instruments, of another jurisdiction or a foreign jurisdiction, may affect the fitness for registration or continued registration of an applicant or registrant.
Further developments will be reported in this newsletter.
Proposed Policy re Registrants Acting as Corporate Directors
Proposed Multijurisdictional Policy 34-202 discusses the potential for conflicts of interest when a registrant acts as a director of, or advisor to, a reporting issuer. The proposed Policy reminds registrants that they have a fiduciary obligation not to reveal confidential information concerning the reporting issuer to anyone not authorized to receive it, including the registrant's personnel and customers. Representatives of a registrant who are not directors of a reporting issuer but are acting in an advisory capacity to a reporting issuer have substantially the same obligations relating to confidential information as a director of the reporting issuer.
The proposed Policy notes that in British Columbia, a salesperson, advising employee and advising partner, director or officer may not act as a director or officer of a reporting issuer.
The proposed policy, which replaces National Policy 18, is expected to be adopted in all CSA jurisdictions except Quebec. Because the policy is not expected to be adopted by all jurisdictions, it is called a Multi-Jurisdictional Policy, rather than a National Policy.
Further developments will be reported in this newsletter.
Instruments To Replace National Policy on POP System
Proposed National Instrument 44-101, Forms, Companion Policy, and Implementing Rule 44-801 will replace National Policy No. 47, which deals with the Prompt Offering Qualification System (the POP system), and those provisions of National Policy No. 1 that deal with clearance procedures for initial Annual Information Forms (AIFs) and short form prospectuses. In Ontario, the Rules, In the Matter of the Prompt Offering Qualification System, (1997), 20 OSCB 1217 and In the Matter of National Policy 47 and the Sol icitation of Expressions of Interest, (1997), 20 OSCB 1217, expire on the coming into force of the proposed National Instrument. The POP system operates through the incorporation by reference in a short form prospectus of an issuer's AIF, information circular, financial statements and material change reports.
Form 44-101F1 prescribes the contents of an AIF and MD&A. Form 44-101F2 pres cribes the contents of a short form prospectus. Some of the major changes from NP47 are:
a change in the timing of the application of the public float test to ensure that the test has been satisfied within 60 days before the filing of the preliminary short form prospectus.
expansion of the POP eligibility criteria
greater harmonization in the treatment of reorganizations and take-over bids
the addition of eligibility criteria applicable to certain distributions of asset-backed securities
the mandating of expedited review procedures for the clearance of renewal AIFs, etc.
Further developments will be reported in this newsletter.
Proposed National Instrument re Administration of RRSPs by Dealers
Proposed National Instrument 33-101 imposes conditions to protect clients' assets when dealers act as administrators of self-directed RRSPs, RESPs, or RRIFs. The proposed National Instrument imports the requirements of the Joint Regulatory Financial Questionnaire and Report, which prescribes acceptable trustees and securities locations. It requires that the trustee remain primarily liable to planholders, even though the dealer is acting as administrator. It prescribes the administrative functions that the dealer must undertake, such as disclosure, record keeping, and maintaining control over plan securities and safekeeping. The proposed Instrument also prescribes the timing for delivery of cash balances from plan accounts to the trustee and prohibits agreements to set-off. Finally, the proposed Instrument requires dealers and others to receive necessary regulatory approvals before the dealer becomes an administrator of a plan.
The proposed National Instrument replaces OSC Policy 4.3.
CSA Conclude Winter Meeting With List of Priorities
At a recent meeting of the CSA Chairs in Toronto, the following issues were discussed:
the creation of a multijurisdictional self-regulatory organization for mutual fund distributors
the proposal to adopt a limited statutory civil liability remedy for secondary market investors for misrepresentations by issuers or related persons
the development of a system of mutual reliance among CSA jurisdictions for regulatory review of prospectuses, registration or dealers and advisers and review of exemption applications
the development of a national escrow policy for initial public offerings.
Alberta
Only One Copy of Applications For Exemptive Relief Must be Filed
Part 3 of ASC Policy 2.1, Applications to the Alberta Securities Commission, has been revised to reduce the number of copies of the application required to be filed with the Commission. In future, applicants shou ld file with the Commission the original executed application and one copy.
The amendment to Policy 2.1 has been incorporated in Volume 2 of the Canadian Securities Law Reporter at P.170-201.
Authorization Order Updated
Schedule C to item 1 of ASC Notice 2 has been updated, authorizing the Deputy Director, Capital Markets to act in the place of the Executive Director in certain circumstances. The new Schedule has been reproduced in Volume 2 of the Canadian Securities Law Reporter at P.170-502. British Columbia
Amendments To Rules Limit Mortgage Exemption
Amendments to the Securities Rules are designed to limit the availability of the mortgage exemption in the Securities Act. The amendments restrict the use of the mortgage exemption to trades that are regulated by the Registrar of Mortgage Brokers, that is, trades in mortgages on land situated wholly in British Columbia. This rule came into effect on February 23, 1998 and, because it has been adopted without prior publication for comment, will remain in effect for only 275 days.
The Commission has also published for comment a proposed rule that will limit the availability of the mortgage exemption to non-syndicated mortgages on land situated wholly in British Columbia to create a new exemption for certain qualified syndicated mortgages on land situated wholly in the province and to require disclosure to investors in all mortgages, both syndicated and non-syndicated.
The amendments to the Rules have been incorporated in Volume 2 of the Canadian Securities Law Reporter at P.203-540 and 204-145.
New Form Provides Interim Form of Offering Memorandum
Form 43C is the interim form of offering memorandum that must be used by persons who rely on the registration and prospectus exemptions to trade in mortg ages, where the exemption requires the use of an offering memorandum. Form 43C p rescribes the disclosure of certain information intended to ensure that investors in mortgages receive sufficient disclosure and notice of their rights and protections under the Act.
The Executive Director is also publishing for comment a form of information statement for mortgages, draft Form 57, to be used by persons wishing to rely on the exemptions in the Act for mortgages or qualified syndicated mortgages. The Information Statement will prescribe the disclosure of appropriate information for investors other than institutional ones, in all mortgages, both syndicated and non-syndicated.
Comments are sought on the draft form. Form 43C has been reproduced in Volume 2 of the Canadian Securities Law Reporter at P.206-043c.
Change To SHAIF System Proposed
On November 27, 1997, the Commission published NIN 97/47, which introduced a number of documents dealing with offshore distributions and established a shorter hold period for certain qualified issuers who have filed a comprehensive disclosure document (the SHAIF System). Under the SHAIF System, securities distributed under prospectus and registration exemptions by qualified issuers, to either domestic or foreign purchasers are eligible for a 4-month hold period, instead of the current 12-month hold period.
The Commission is considering whether to introduce a prospectus exemption that is similar to proposed Alberta Rule 45-501. The prospectus requirement would not apply to transactions involving purchasers that are only outside Alberta, where the distribution is made in compliance with both the requirements of the jurisdiction in which the purchaser is resident, and the steps set out in the proposed Alberta Rule.
For further information, please refer to Notice NIN 98/1, which has been reproduced in Volume 2 of the Canadian Securities Law Reporter at P.222-280.
Respecification of Required Forms
Effective January 16, 1998, the Executive Director is respecifying the forms referred to in the Index of Forms for the purposes of the Securities Act, the Securities Regulation, and the Securities Rules, which refer to a required form but for which no form has been specified. In addition, it lists those sections of the Securities Rules that refer to offering documents specified by the Executive Director.
The Index of Forms has been reproduced in Volume 2 of the Canadian Securities Law Reporter at P.222-281
Commission Joins CBCA Single Jurisdiction Filing Initiative
Effective January 30, 1998, the Commission became a participant in the single jurisdiction filing initiative under the Canada Business Corporations Act. Under this initiative, corporations that are required to file certain documents under the CBCA are exempt from having to make these filings if they file documents containing similar information with the Commission. The federal exemption applies to insider reports, interim financial statements, prospectuses, statements of material facts, registration statements, and news releases required to be filed under the CBCA.
This initiative will benefit issuers that are incorporated under the CBCA and are reporting issuers only in British Columbia. With the addition of the B.C. Securities Commission, all members of the Canadian Securities Administrators are now participating in this initiative. Manitoba
Mutual Fund Dealers Have Obligations
The Commission has published a notice to remind mutual fund dealers of their obligations under the Securities Act, the Securities Regulations, and Commission policies. Current enforcement activities have disclosed problems with certain activities of mutual fund dealers, particularly those salespeople who consider themselves to be associated with a mutual fund dealer.
The obligations of mutual fund dealers have been summarized in a notice reproduced at P.271-014 in Volume 2 of the Canadian Securities Law Reporter. Nova Scotia
Commission Rule Permits Secondment Arrangements
New Rule 11-501 permits the Commission to enter into secondment arrangements. A secondment arrangement is an arrangement between the Commission and a professional firm in which an employee of the firm joins the staff of the Commission for a specified period of time. All or a portion of the remuneration of the employee is paid for by the professional firm. The rule has been reproduced in Volume 3 of the Canadian Securities Law Reporter at P.425-001; a related notice appears at 422-541. Ontario
Securities Act Amended
Chapter 10, An Act to stimulate job growth, Chapter 31, the Education Quality Improvement Act, 1997, and Chapter 43, the Ontario Property Assessment Corporation Act, 1997, which amended the Securities Act, have been incorporated in Volume 3 of the Canadian Securities Law Reporter starting at P.450-033.
Amendments to the Labour Sponsored Venture Capital Corporations Act, which has been renamed the Community Small Business Investment Funds Act, by 1997, c. 43, have also been incorporated starting at P.465-601.
New Insider Information Policy
New Policy 33-601, Guidelines for Policies and Procedures Concerning inside Information replaces OSC Policy 10.2 Guidelines for Establishment of Procedures in Relation to Confidential Information. The purpose of the Policy is to provide general guidelines to registrants for policies and procedures concerning undisclosed material information. In the view of the Commission, the responsibility for ensuring that appropriate policies and procedures are adopted and enforced rests with the board of directors and senior officers of each registrant. In addition, the Policy sets forth specific policies and procedures which a registrant should consider in relation to the education of employees.
The Policy been reproduced in Volume 3 of the Canadian Securities Law Reporter at P.472-105
Registration Exemption For Trades By Financial Intermediaries
Rule 32-502, which came into effect on January 1, 1997, provided that up to and including March 31, 1998, the registration requirements of the Securities Act do not apply to certain types of trades by a financial intermediary. The Commission is amending the Rule by deleting the sunset date of March 31, 1998. A corresponding amendment will be made to the Securities Regulations.
The amendments to the Rule have been incorporated in Volume 3 of the Canadian Securities Law Reporter at P.480-002. A related notice appears at P.478-002a.
Trades by Financial Intermediaries in Mutual Funds
Rule 32-503 provides for registration and prospectus exemptions for certain trades up to and including March 31, 1998. The Rule has been amended to remove the sunset date of March 31, 1998 so that the registration and prospectus relief provided by the Rule will not be time limited and to add the prospectus and registration exemption currently contained in paragraph 14(g) and paragraph 151(a) of the Regulation to the Rule. A corresponding amendment will be made to the Securities Regulations.
The amendments to the Rule have been incorporated in Volume 3 of the Canadian Securities Law Reporter at P.480-003. A related notice appears at P.478-003a.
Distributions to Portfolio Advisers on Behalf of Fully Managed Accounts
On February 5, 1998, the Ontario Minister of Finance approved Rule 45-504, Prospectus Exemption For Distributions of Securities to Portfolio Advisers on Behalf of Fully Managed Account. The Rule, which appears in Volume 3 of the Canadian Securities Law Reporter at P.480-051, came into force on February 20, 1998.
Rule re Limited Market Dealers
The Commission has made Rule 31-503, Limited Market Dealers, and rescinded the notice entitled Procedures and Requirements for Implementing Amendments to the Regulation Regarding Entry into and Ownership of the Ontario Securities Industry, published in (1987),10 OSCB 2969. The Rule will amend and revoke certain sections of the Securities Regulation.
The Rule sets out the restrictions related to a limited market dealer registration and the conditions of registration for limited market dealers, their salespersons, officers and partners. The Rule provides that a limited market dealer may only engage in trading for which subsection 206(1) of the Regulation removes the registration exemptions in the Act. The conditions of registration for a limited market dealer and its officers, partners and directors are limited to account supervision, including the requirement to know your client and assess the suitability of trades for a client, the requirement to have a compliance officer and a requirement to hold clients' free credit balances in trust.
The Rule has been reproduced in Volume 3 of the Canadian Securities Law Reporter at P.480-053; a related notice appears at P.478-053.
Rule re Surrender of Registration
The Commission made Rule 33-501, Surrender of Registration and rescinded Uniform Act Policy Statement 2-07.
The Rule ensures that, upon application for surrender of registration, the registration is suspended. The suspension will provide a period of non-activity by the registrant, while the registrant remains subject to the oversight of the Commission, during which period the registrant w ill discharge its obligations. The Rule requires the applicant to consent to the suspension of its registration. The consent allows the Commission to suspend the registration without the procedural step of a formal hearing.
The Rule has been reproduced in Volume 3 of the Canadian Securities Law Reporter at P.480-055; a related notice appears at P.478-054.
Rule re Compliance With Section 42
The Commission has made Rule 33-504, Compliance with Section 42 and rescinded a notice entitled Compliance With Section 41 of the Securities Act.
Section 42 of the Securities Act requires a registered dealer to name every person or company with an interest of five percent or more in the capital of the dealer on all letterhead, circulars and stationery that contain any offer or solicitation respecting a trade in securities or in a preliminary prospectus or prospectus upon or in which the name of the dealer appears as underwriter.
The Rule provides an exemption from the requirements of Section 42 of the Act for members of the TSE and IDA and their affiliates who comply with Section 18.14 of the General By-Law of the TSE or Regulation 1400 to the By-Laws of the IDA.
The Rule has been reproduced in Volume 3 of the Canadian Securities Law Reporter at P.480-055; a related notice appears at P.478-055.
Trades To Employees, Executives, and Consultants
Proposed Rule 45-503 will replace the Rule In the matter of Trades by an Issuer in Securities of Its Own Issue to Senior Officers, directors, Personal Holding Companies and RRSPs and a Controlling Shareholder in Securities of an Issuer to Employees, Senior Officers, Directors, Personal Holding Companies and RRSPS, which came into force on March 1, 1997, which in turn incorporated the Blanket Ruling of the same name.
Future Developments will be reported in this newsletter. Investment Dealers Association
Proposed Changes To Options and Futures Proficiency Requirements
Regulations 1800.3,1900.2 and 1900.3 set out the proficiency requirements for futures or options trading or supervising. These proficiency requirements include completion of various examinations set by the Canadian Securities Institute (the CSI).
The CSI is proposing to modify its derivatives examination program to include a two-step process requiring both options and futures applicants to complete the Derivatives Fundamentals Course in addition to a separate licensing course for both options and futures. These proposed changes would become effective December 8, 1998. The proposed amendments to Regulation 1800.3, 1900.2 and 1900.3 reflect these changes.
Proposed By-law Amendment to Powers of the District Council
The IDA set up a District Council, members of which are drawn from Member firms in each of the provinces. A proposed by-law amendment clarifies the power of District Councils to impose conditions on a registered representative who has filed for bankruptcy or has become insolvent.
Monthly Financial Report To Be Filed Within 20 Days Of Month End
The Board of Directors has approved an amendment to the regulatory filing deadline for the Monthly Financial Report. Effective February 1, 1998, the Monthly Financial Report must be filed within 20 business days of the month end date. Toronto Futures Exchange
Price Limits Removed For TFE Index Futures Contracts
New By-law 60 removes price limits for all TFE Index Futures Contracts. The by-l aw has been reproduced in Volume 1 of the Canadian Stock Exchanges Manual starti ng at P.851-001. Vancouver Stock Exchange
Manual Revised
The Manual has been extensively revised; the amendments have been incorporated in Volume 2 of the Canadian Stock Exchanges Manual starting at P.920-001. Montreal Exchange
Information Exchange With Other Canadian Exchanges
The four Canadian exchanges have agreed to adopt a new regulation that will enable them to communicate directly with each others' members in order to obtain all necessary information for their investigations. The Montreal Exchange has added article 4007 to enable each member to submit the requested information directly to the Exchange making the request. Article 4007 has been reproduced in Volume 2 of the Canadian Stock Exchanges Manual at P.3600-807.
New Policy re The Canadian Call
The Exchange recently introduced Policy T-6, The Canadian Call (TCC). TCC is an intraday crossing network offered by VERSUS Brokerage Services through The VERSUS Network. Policy T-6, which is effective January 29, 1998, has been reproduced in Volume 2 of the Canadian Stock Exchanges Manual at P.5000-506.
Cut-Off Dates For New Material
Alberta Securities Commission Summary, Volume 7, Issue 5, dated February 6, 1998
BCSC Weekly Summary: Edition 98:7, dated February 13, 1998
Manitoba Circular re Notice to Broker-Dealers, dated January 26, 1998
Nova Scotia Royal Gazette dated January 21, 1998
Ontario Securities Commission Bulletin: Volume 21, Issue 8, dated February 20, 1998
IDA Bulletin No. 2446, dated February 13, 1998
Toronto Futures Exchange Notice To Members No. TF98-09, dated February 6, 1998.
Winnipeg Commodity Exchange Manual: Updates dated December 1997 and January 1998
Alberta Stock Exchange Manual: Update No. 7, dated January 16, 1998
Montreal Exchange Circular Nos. 011-98, dated January 27, 1998 and 016-98, dated February 5, 1998.
Copyright CCH Canadian Limited Mar 1998