Canadian Securities Law Online

IIROC publishes draft requirements for distribution of non-arm's length investment products

Stikeman Elliott LLP — Mon, 08 Feb 2010 14:52:18 -0500

On February 5, the Investment Industry Regulatory Organization of Canada (IIROC) published for comment its draft rules notice, "Requirements and Best Practices for distribution of non-arm's length investment products", which addresses the regulatory concerns raised by the distribution by a Dealer Member to its clients of investment products issued by the Member itself, an issuer, or a selling securityholder with which a Member does not deal at arm's length or is otherwise connected. The draft notice sets out IIROC staff's expectations regarding distributions by Dealer Members of non-arms length investment products and provides guidance to assist Dealer Members in meeting their regulatory obligations to their clients. The draft notice also includes a new requirement that Dealer Members must notify IIROC in advance of the initial distribution of non-arms length investment products. In publishing the draft requirements, IIROC cited concerns regarding potential conflicts of interest, product due diligence and client suitability.

IFRS transition disclosure review published

Stikeman Elliott LLP — Mon, 08 Feb 2010 12:39:55 -0500

On February 5, the Ontario Securities Commission published OSC Staff Notice 52-718 IFRS Transition Disclosure Review (the Notice), which summarizes the results of a review conducted by the OSC of the "extent and quality of International Financial Reporting Standards (IFRS) transition disclosures made by issuers" in light of guidance previously provided by the CSA. The review focused on IFRS transition disclosure provided in 2008 annual, and 2009 interim, MD&A. Staff of the OSC provide additional guidance under the Notice regarding expectations for future MD&A filings.

In summarizing the results of the OSC's review, the Notice states that 40% of reporting issuers reviewed did not provide IFRS transition disclosure. Of the 60% of issuers that did discuss an IFRS changeover plan in MD&A disclosure, half provided a generic description without direct application to the issuer's own circumstances. Ultimately, the OSC found that "reporting issuers are not adequately discussing, in MD&A, the key elements of their IFRS changeover plan or their progress towards achieving this plan."

In respect of future MD&A filings, the Notice states that staff expect issuers to provide more detailed information about the expected effects of IFRS as the changeover date approaches. Specifically, an issuer's 2009 annual MD&A disclosures should provide a progress update on their conversion plan, along with a description of the major identified accounting differences between the issuer's current accounting policies and those the issuer expects to apply when preparing its IFRS financial statements. In 2010, OSC staff expect issuers to provide significant details of their changeover plans and information about key decisions on policy choices under IFRS 1 First-time Adoption of International Financial Reporting Standards. Further, if an issuer has quantified information about the impact of IFRS on key financial statement line items when it prepares MD&A in 2010, the issuer should include this information in its MD&A.

Citing the importance that investors be properly informed during the transition to IFRS, OSC staff state that they will conduct reviews of selected 2009 and 2010 annual and interim MD&A filings and follow up on commitments made by issuers to improve future disclosure. According to the Notice, OSC staff may also consider other regulatory action as circumstances warrant.

CSA publish registration regime FAQ

Stikeman Elliott LLP — Fri, 05 Feb 2010 10:57:27 -0500

The Canadian Securities Administrators (CSA) have published a staff notice this morning addressing frequently asked questions as of February 5, 2010 relating to financial reporting requirements under the new NI 31-103 Registration Requirements and Exemptions. The notice supplements an earlier FAQ published on December 18, 2009.

Securities class action certified: First of its kind in Ontario

Stikeman Elliott LLP — Wed, 03 Feb 2010 13:28:59 -0500

Silver v. IMAX Corporation et al. [2009] O.J. Nos. 5573 and 5585 (S.C.J.)

Simon Bieber and Jennifer Imrie

On December 14, 2009, Justice van Rensburg of the Ontario Superior Court of Justice handed down two related rulings in the Silver v. IMAX Corporation litigation. The first (the “Leave Decision”) granted the plaintiffs leave to proceed with their class action against IMAX Corporation and certain individual respondents (collectively, the “IMAX Defendants”) under section 138.8 of Ontario’s Securities Act (“OSA”), while the second (the “Certification Decision”) certified the action, including both statutory and common law claims, as a class proceeding.

The Leave Decision is the first to consider the leave requirements for a statutory misrepresentation claim under the secondary market liability provisions in Part XXIII.1 of the OSA, while the Certification Decision appears to accept the “efficient market” (or “fraud on the market”) theory for common law misrepresentation claims. Justice van Rensburg permitted certification despite the defendant’s argument that the claim as pleaded is deficient for not alleging individual reliance by each member of the proposed class and accepted the plaintiffs’ argument that certification should extend to a global class of plaintiffs consisting of all persons who acquired securities of IMAX Corporation (“IMAX”) during the defined “Class Period” of February 17, 2006 to August 9, 2006 and who continued to hold some or all of those securities at the close of trading on August 9, 2006.

Facts

The plaintiffs, shareholders of IMAX, are suing with respect to a decline in the price of their shares that they argue was caused by alleged misrepresentations in IMAX’s 2005 Form 10-K, in its 2005 Annual Report and in press releases issued in February and March of 2006. The plaintiffs allege that IMAX misrepresented the 2005 financial results reported in those documents as having been prepared in accordance with GAAP and further allege that, as a result, IMAX’s estimated earnings per share as reported in those documents was also misrepresented.

The plaintiffs assert common law causes of action for negligence, negligent misrepresentation, “reckless” misrepresentation and conspiracy in addition to a statutory cause of action for misrepresentations affecting the secondary market under Part XXIII.1 of the OSA.

The Certification Decision

The plaintiffs sought certification of a global class for the common law claims of negligent misrepresentation, “reckless” misrepresentation, negligence simpliciter and conspiracy and with respect to their statutory claims for secondary market liability under the OSA. As discussed in the following section, the primary certification issues were whether the plaintiffs could establish a duty of care and whether the pleadings properly disclosed a cause of action for misrepresentation given that the plaintiffs had not pled individual reliance on the misrepresentation. The IMAX Defendants opposed the certification of the common law claims but did not oppose certification of the statutory cause of action under the OSA in the event that the Court decided to grant leave to proceed on the OSA claims.

The duty of care and reliance issues

In addressing the plaintiffs’ common law misrepresentation claim, Justice van Rensburg considered whether the claim properly asserted the cause of action as is set out in Queen v. Cognos Inc., [1993] 1 S.C.R. 87, namely whether (i) the defendants owed a duty of care to the plaintiffs based on a “special relationship”; (ii) the defendants made an untrue, inaccurate or misleading representation; (iii) the misrepresentation was made negligently; (iv) the plaintiff reasonably relied on the misrepresentation; and (v) the plaintiffs suffered damages as a result of the misrepresentation. As noted above, only elements (i) and (iv) – the existence of a special relationship and reasonable reliance – were the subject of dispute in this motion.

With respect to these two disputed issues, the plaintiffs argued (i) that IMAX and the individual defendants owed a duty of care to the investing public in releasing its disclosure documents and (ii) that the efficient market theory could be used to establish that by the act of purchasing or acquiring IMAX securities the plaintiffs relied on the misrepresentation.

While acknowledging that there is a “special relationship” between the defendants and the plaintiffs, the defendants relied on Menegon v. Philip Services Corp., [1999] O.J. No. 4080 (S.C.), arguing that in the circumstances the duty of care should be limited or precluded for policy reasons, i.e. that the imposition of such a duty would lead to indeterminate liability and would conflict with the statutory remedy under the OSA. Justice van Rensburg rejected the defendants’ argument. Relying on Mondor v. Fisherman,[2001] O.J. No. 4620 (S.C.) and Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165, she determined that it was not “plain and obvious” that the policy reasons asserted by the defendants precluded a claim of misrepresentation from proceeding at the certification stage. She found that a duty of care may have been owed in the circumstances, as the intended recipients of the documents containing the misrepresentation were the investing public, including the plaintiffs and proposed class members, and that IMAX issued the documents for the purpose of attracting and informing shareholders.Importantly, Justice van Rensburg refused to limit or restrict the alleged duty of care based on concerns of indeterminate liability and determined that the common law causes of action did not conflict with the statutory remedy contained in Part XXIII.1 of the OSA.

With respect to the second issue (reliance), the defendants argued that the plaintiffs’ assertion that reliance was established by the act of purchasing or acquiring IMAX securities was insufficient as there was no pleading that the proposed class members individually relied on the misrepresentations in making their investment decisions. The defendants maintained that the “efficient market” theory put forward by the plaintiffs was akin to the American “fraud on the market” theory, which is not recognized in Canada.

Although Justice van Rensburg acknowledged that no case asserting the “efficient market theory” has gone to trial, she held that, in this case, there was a conceivable claim based on the plaintiffs' pleading of the “efficient market theory” to establish reliance, i.e. instead of alleging individual reliance by each class member, the plaintiffs alleged that the market for IMAX’s shares was efficient – that the market price of the shares reflected all public information – and that the plaintiffs relied on the misrepresentations by purchasing the shares. In so deciding, Justice van Rensburg relied on Mondor v. Fisherman and Lawrence v. Atlas Cold Storage Holdings Inc., [2006] O.J. No. 3748 (S.C.J.),holding that the pleading disclosed a cause of action for misrepresentation notwithstanding the absence of an allegation of direct individual reliance by each class member. In so holding, Justice van Rensburg appears to have accepted that the “fraud on the market” or “efficient market” theory can be applied in Ontario, at least at the pleading or certification stage.

In respect of the plaintiff’s other common law claims, Justice van Rensburg found that the plaintiffs’ conspiracy and reckless (fraudulent) misrepresentation claims had been properly pled but that the negligence simpliciter claim was identical in substance to the negligent misrepresentation claim and therefore improper.

Size of the class

The plaintiffs sought to certify a global class consisting of all persons who acquired securities of IMAX during the proposed Class Period and who held some or all of those shares at the end of trading on August 9, 2006 when IMAX released its press release announcing the SEC investigation. The defendants opposed the certification of a global class on the grounds that it would be overinclusive inasmuch as it could include individuals (or entities) who did not know about or rely on the misrepresentation. The defendants also argued that the certification of a global class would create a conflict of laws issue, requiring an Ontario court to take jurisdiction over class members residing outside the province. In addition, they contended that the principles of order and fairness weighed against certification of a global class, particularly in light of a similar class proceeding that had been commenced in the United States.

In certifying a global class, Justice van Rensburg found that the issues raised by the pleading had a “real and substantial” connection to Ontario. She determined that the fact that a similar proceeding had been commenced (although not certified) in the United States was inconsequential to the Ontario action. Furthermore, she determined that any concern over conflict of laws issues was premature unless and until the defendants asserted reliance on laws of other jurisdictions in their statement of defence. In her view, it was appropriate to “wait and see” how the issues, if any, developed.

The Leave Decision

The Leave Decision focused on whether the plaintiffs should be granted leave to proceed with their statutory misrepresentation claim. Section 138.8 of the OSA requires that the Court grant leave where it is satisfied that (i) the plaintiffs have brought the claim in good faith and (ii) there is a reasonable possibility that the plaintiffs will be successful at trial.

As this was the first case to consider the leave requirements of section 138.8, Justice van Rensburg’s main task was to interpret and apply the leave requirement and set the thresholds that would apply to both branches of the test. All parties agreed that the leave requirement involved a preliminary consideration of the merits of the action.

Good faith

The IMAX Defendants took the position that the plaintiffs had a high onus to establish good faith, needing to establish (i) that the action has been brought for the benefit of the corporation and not for the plaintiffs’ benefit and (ii) that they have a reasonable belief in the merits of their claim. Justice van Rensburg rejected this characterization of “good faith” in favour of an alternative view according to which the plaintiffs were required only to establish that they brought the action in the honest belief that they have an arguable claim and for reasons that are consistent with the purpose of the statutory cause of action and not for an “oblique or collateral purpose.”

Justice van Rensburg found that the plaintiffs had brought the action to permit shareholders to recover damages and to hold the IMAX defendants accountable for the company’s alleged misrepresentations (while deterring others from doing the same) – all of which, she determined, was consistent with the statutory scheme for secondary market liability. Accordingly, Justice van Rensburg found that the plaintiffs had met the first branch of the test for leave to assert their statutory claim.

Reasonable possibility

With respect to the second branch of the leave test, i.e. whether there is a “reasonable possibility” that the action will be resolved in favour of the plaintiffs, all parties acknowledged that a preliminary consideration of the merits of the plaintiffs’ case was necessary. The plaintiffs contended that the threshold for a reasonable possibility of success at trial is met as long as there is some evidence which, if accepted by the court, is consistent with the allegation that a misrepresentation has been made. In contrast, the IMAX Defendants argued that the burden on the plaintiffs to meet this part of the leave test should be a heavy one given that the overall purpose of the leave requirement is to deter unmeritorious claims or “strike suits”. The defendants also argued that the plaintiffs must “overcome” the statutory defences asserted by the defendants – “reasonable investigation” and “expert reliance” (set out in subsections 138.4(6) and (11) of the OSA, respectively).

In interpreting this branch of the “leave” test, Justice van Rensburg held that the leave provision requires the plaintiffs to put forward evidence with respect both to the alleged misrepresentation and to the conduct of IMAX’s officers or directors in relation to it. However, Justice van Rensburg established a low threshold for a “reasonable possibility” – as requiring only “something more than a de minimis possibility or chance that the plaintiff will succeed at trial” – finding that the leave requirement was only meant to prevent an abuse of process or purely speculative claims.

In reviewing the evidence, Justice van Rensburg found that the plaintiffs had satisfied this “low threshold” against the IMAX Defendants (except for two outside directors).

Raising statutory defences at the leave stage

Justice van Rensburg also addressed the statutory defences asserted by the IMAX Defendants, namely the “due diligence defence” and the “expert reliance” defence. In doing so, Justice van Rensburg determined that to establish these defences at the leave stage, a defendant must submit evidence that would foreclose the plaintiffs’ reasonable possibility of success at trial.

The due diligence defence

The statutory “due diligence” defence requires a defendant to establish (i) that an investigation, reasonable in the circumstances, was undertaken; and (ii) the defendant had no reasonable grounds to believe that there was a misrepresentation. Justice van Rensburg found that the first branch of this defence involved a consideration of the systems in place at IMAX concerning revenue recognition, the roles of responsibilities of those involved in revenue recognition, and the oversight and assurance measures including the performance of audit functions by IMAX’s auditors. The second branch involved a consideration of the specific knowledge of each respondent and the knowledge someone in his or her position ought to have had. Importantly, Justice van Rensburg determined that the “business judgment rule” should not be “read in” to the “due diligence defence” because, in her view, reading in a standard of deference to a director’s decision would be both unnecessary and inconsistent with the scheme and purpose of the statutory scheme for secondary market liability.

After a review of the evidence, Justice van Rensburg held that the defendants had not submitted evidence of “due diligence” that would foreclose the reasonable possibility that the plaintiffs’ would be successful at trial.

Expert reliance defence

The IMAX Defendants also asserted the expert reliance defence on the basis that it was reasonable for them to rely on the advice of IMAX’s auditors. Justice van Rensburg questioned whether this defence was applicable, as in her view, the defence applies to statements that originate with an expert. In this case the alleged misrepresentations originated with IMAX, having appeared in IMAX’s continuous disclosure documents.

As a result, Justice van Rensburg rejected this defence and granted leave for the plaintiffs to proceed with their statutory cause of action against all of the defendants, with the exception of two who were directors of IMAX but had not been involved in the audit committee or the making of the alleged misrepresentation.

Going forward

The IMAX Defendants have sought leave to appeal and this is likely not the last word on these issues.

CSA release 2009 enforcement report

Stikeman Elliott LLP — Wed, 03 Feb 2010 11:17:00 -0500

On February 1, the Canadian Securities Administrators (CSA) released its 2009 Enforcement Report. According to the report, 141 enforcement cases were concluded in 2009, resulting in over $153 million in fines and administrative penalties ordered and over $92 million in restitution, compensation and disgorgement. The fines and penalties assessed in 2009 represented a large increase from the $12 million ordered in 2008. The report also discusses the preventative measures employed by the CSA as well as the sharp increase in the use of reciprocal orders since 2008. Meanwhile, a number of case summaries are presented in the report to describe the main categories of violations and to illustrate the type of activity that constitutes each type of violation.

IOSCO and CPSS to review standards for financial market structures

Stikeman Elliott LLP — Wed, 03 Feb 2010 10:39:43 -0500

Yesterday, the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) announced the launch of a comprehensive review of financial market infrastructure standards, including payment systems, securities settlement systems and central counterparties. The review, which will be led by CPSS members (consisting of central banks, including the Bank of Canada), members of the IOSCO Technical Committee (which includes the OSC and AMF), the IMF and World Bank, is part of an initiative "to reduce the risks that arise from interconnectedness in the financial system."

Amendments to CDS rules proposed regarding issuance of money market securities

Stikeman Elliott LLP — Mon, 01 Feb 2010 09:51:39 -0500

CDS Clearing and Depository Services Inc. (CDS) recently published proposed amendments to its rules regarding the processes for issuing, transferring and maintaining custody of money market securities in CDSX. Specifically, the amendments (i) clarify the process by which securities become eligible for CDSX; (ii) provide for an exception allowing CDS to release confidential information concerning a participant where the information concerns material risk events; (iii) create a single, uniform qualification for all participants acting as issuer agents; and (iv) create new internal control standards for participant issuer agents.

CDS is accepting comments on the proposed amendments for 30 calendar days following the January 29th publication of the proposals.

BCSC reissues consent to disclosure of investigation information in response to Shapray decision

Stikeman Elliott LLP — Fri, 29 Jan 2010 14:38:38 -0500

In response to last summer's British Columbia Court of Appeal (BCCA) decision in Shapray v. British Columbia (Securities Commission), the British Columbia Securities Commission (BCSC) has announced the rescission of BC Instrument 15-501 Disclosure of Investigation Information and its related policy, while also deleting section 2.6(d) of BC Policy 15-601 Hearings. In its place, the BCSC has announced a new BC Instrument 15-501 Disclosure of Investigation Information, which provides consent to disclose "any information or evidence obtained or sought to be obtained or the name of any witness examined or sought to be examined under section 143, 144 or 145 of the Securities Act."

In Shapray, the petitioner commercial litigation lawyer argued that section 148(1) of the British Columbia Securities Act, which restricted disclosure of information and evidence obtained pursuant to an investigation by the BCSC, was unconstitutional. Mr. Shapray claimed that the provision made it impossible for him to adequately defend allegations of misconduct under the Securities Act or to properly prepare witnesses. Section 148(1) of the Act, which is similar to provisions found in the securities laws of other provinces, states:

Without the consent of the commission, a person must not disclose, except to the person's counsel, any information or evidence obtained or sought to be obtained or the name of any witness examined or sought to be examined...

Ultimately, the BCCA struck down s. 148 of the Act as unconstitutional, but delayed the order of invalidity for a year so as to allow the Legislature to consider alternatives. The instruments and policies recently revoked, meanwhile, provided the BCSC's consent for the disclosure of investigation information under prescribed circumstances. The new instrument provides for a broader consent, effective December 3, 2009, until the earlier of July 8, 2010 and the date the legislature repeals section 148.

SEC to issue guidance on climate change disclosure

Stikeman Elliott LLP — Fri, 29 Jan 2010 14:23:55 -0500

On Wednesday, the U.S. Securities and Exchange Commission (SEC) approved the issuance of interpretive guidance respecting existing SEC disclosure requirements that apply to business or legal developments relating to climate change. While the guidance has yet to be published by the SEC, a speech by SEC Commissioner Luis A. Aguilar suggests that the SEC's release will clarify the responsibility of companies to discuss (i) the direct effects of existing and pending environmental regulation, legislation and treaties on a company's business, operations, risk factors and in MD&A; (ii) the indirect effects of such regulation on a company's business; and (iii) the effect on a company's business and operations related to the "physical changes to our planet caused by climate change". Commissioner Aguilar also suggested that companies should know their emissions information in order to evaluate risks and focus on investors when considering the materiality of information.

Upcoming income trust tax changes expected to increase M&A

Stikeman Elliott LLP — Thu, 28 Jan 2010 16:31:48 -0500

Stikeman Elliott lawyer Simon Romano recently discussed the anticipated conversions of income trusts due to the impending tax changes on the Business News Network program Market Call. Once effective, the tax changes will essentially eliminate the comparative advantage of the income trust structure but for a narrow exemption for certain "qualifying" REITs. According to Mr. Romano, as the date for the upcoming tax changes approaches, "I think the pressure will mount to either sell yourself, convert, or decide, for all the reasons that make sense to you, to stay where you are in the status quo."

For more information on the options for income trust conversions and the upcoming tax changes, effective on January 1, 2011, see our 2010 Income Trust Conversion Guide.

Changes to MFDA policy regarding complaint handling and investigations effective February 1st

Stikeman Elliott LLP — Thu, 28 Jan 2010 11:05:32 -0500

Amendments to MFDA Policy No. 3 Complaint Handling, Supervisory Investigations and Internal Discipline and consequential amendments to related MFDA rules and policies are scheduled to come into effect on February 1, 2010. The amendments are intended to provide "additional guidance with respect to the standards that Members should have in place regarding complaint handling and supervisory investigations" as well as consistency with the new registration regime and IIROC complaint handling requirements. The amended Policy No. 3 considers such issues as the assessment and handling of complaints, settlement agreements, supervisory investigations, internal discipline and record retention.

New Brunswick Securities Commission answers frequently asked questions on local derivatives rule

Stikeman Elliott LLP — Tue, 26 Jan 2010 15:05:41 -0500

On January 7, the New Brunswick Securities Commission (NBSC) published NBSC Notice 91-701 to respond to certain frequently asked questions on NBSC Local Rule 91-501 Derivatives (the Rule). As discussed in our previous update dated December 14, 2009, the Rule imposes registration and risk disclosure requirements in respect of trades in “derivatives” as defined in the Rule, other than trades among qualified parties.

The notice clarifies that a qualified party that engages in a derivatives transaction is responsible for determining whether the other party is also a qualified party. To do so, it may rely on factual statements made by the other party provided that it does not have reasonable grounds to believe that the statements are false. The qualified party is also responsible for determining whether the exemptions under the Rule are applicable based on the facts supplied by the other party and should retain all documentation relating to its determination.

The notice is somewhat ambiguous in response to the question of whether the Rule applies to principal protected notes (PPNs) and refers readers to CSA Staff Notices 46-303 and 46-304. In characterizing PPNs as investment products that offer an investor potential returns “based on the performance of an underlying investment”, it appears that NBSC staff is suggesting that they would fall within the definition of “derivative” under the Rule. However, the notice does clarify that the Rule does not apply to spot foreign exchange contracts and that the registration exemptions contained in the Rule may be relied on by insurance companies, loan and trust companies, investment dealers, portfolio managers, investment fund managers (and certain persons authorized to act as such or carry out similar functions), and certain registered individuals (all as referred to in paragraphs (d), (f). (j) and (k) of the definition of “qualified party”) when acting as agent or trustee for a fully-managed account.

The notice also provides a six-month transition period for financial sector participants having to implement new derivatives-related compliance measures, giving them until March 28, 2010 to phase in compliance obligations arising from the Rule.

New CSA insider reporting regime scheduled to come into force in April 2010

Stikeman Elliott LLP — Fri, 22 Jan 2010 18:01:54 -0500

The Canadian Securities Administrators (CSA) today announced the adoption of National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104), and the related companion policy, along with the repeal of, or amendments to, a number of related instruments and policies. Insider reporting requirements and exemptions have been harmonized under NI 55-104 across all Canadian jurisdictions, except in the case of Ontario, where equivalent requirements will remain in the Securities Act (Ontario). Despite the difference in approach, the substance of the new requirements will be the same across the CSA jurisdictions. An earlier form of NI 55-104 was published in December 2008 for comment. While some changes where made to NI 55-104 in response to comments received, according to the CSA the final form of the instrument is substantively similar to the earlier proposal.

Specifically, NI 55-104 reduces the range of insiders required to file insider reports by introducing the concept of “reporting insider.” According to the CSA, this approach will focus the insider reporting requirement on a core group of insiders with the greatest access to material undisclosed information and the greatest influence over the reporting issuer. Interestingly, under NI 55-104, the concept of “reporting insider” includes a shareholder whose 10% beneficial ownership, control or direction is calculated based on post-conversion beneficial ownership of any convertible securities that are convertible within 60 days.

While NI 55-104 aims to narrow the range of insiders that are subject to the reporting requirement, it also expands the nature of the interest that is to be reported by including not only an insider’s beneficial ownership of, or control or direction over, securities of a reporting issuer, but also the insider’s interest in, or right or obligation associated, with a related financial instrument involving a security of the reporting issuer. As well, NI 55-104 contains specific provisions relating to reporting requirements associated with convertible or exchangeable securities such as options and warrants as well as agreements, arrangements or understandings that have the effect of altering one’s economic exposure to a reporting issuer or involving a security, or a related financial instrument involving a security, of a reporting issuer.

NI 55-104 also accelerates the filing requirement for subsequent insider reports from 10 calendar days to five (but provides a six-month transition period until October 31, 2010 for compliance with this accelerated filing deadline).

The new instrument is expected to come into force in all jurisdictions, except Ontario, on April 30, 2010, once Ministerial approval is received. In Ontario, the new requirements are expected to come into force on the later of April 30, 2010 and the date the requisite provisions of the Budget Measures Act, 2006 (No. 2) are proclaimed into force.

Minsterial approval announced of amendments to marketplace operation and trading rules

Stikeman Elliott LLP — Fri, 22 Jan 2010 15:29:34 -0500

On January 12, 2010, the Minister of Finance approved amendments to National Instrument 21-101 Marketplace Operation and National Instrument 23-101 Trading Rules, which were originally published in November 2009 with technical corrections made in December 2009. The amendments not related to the "order protection rule" (i.e. changes other than to Part 6 of NI 23-101) are scheduled to come into force on January 28, 2010. Those related to the "order protection rule" will come into force on February 1, 2011. The Canadian Securities Administrators intend to publish a notice shortly that will outline the expected milestone dates regarding the implementation of the "order protection rule".

OSC amends Rules regarding fees

Stikeman Elliott LLP — Fri, 22 Jan 2010 14:10:33 -0500

The Ontario Securities Commission (OSC) has announced that it has made amendments to OSC Rule 13-502 Fees and OSC Rule 13-503 (Commodity Futures Act) as well as to their respective companion policies. Earlier versions of the rules were published in October 2009 and on receipt of Ministerial approval, the amendments are expected to come into force on April 5, 2010.

OSC publishes report regarding review of investment funds

Stikeman Elliott LLP — Fri, 22 Jan 2010 13:41:13 -0500

Earlier this week, the Ontario Securities Commission (OSC) issued a report summarizing its compliance review of various types of investment funds. The review began in September 2008 in response to concerns respecting market turmoil and focused on assessing compliance by fund managers with Ontario securities laws. Funds were reviewed in three phases, beginning with money market funds, followed by non-conventional investment funds and finally focusing on hedge funds.

While the OSC noted "some instances of non-compliance" during site visits, the report states that no industry-wide compliance issues were observed. The report, however, makes a number of observations and includes suggested practices for fund managers.

ICE Futures Canada amends Rules to address FIX tags

Stikeman Elliott LLP — Fri, 22 Jan 2010 10:58:08 -0500

On January 11, ICE Futures Canada published a notice regarding amendments to its Rules in order to "more accurately define the information which should be contained" in the "FIX tags" used to identify traders and companies on trades submitted via ISV front-end trading systems.

Nunavut implements new rule regarding costs and fees

Stikeman Elliott LLP — Fri, 22 Jan 2010 10:49:47 -0500

On January 11, Nunavut's Local Rule 31-503 came into effect, setting out a new schedule of costs and fees adopted under s. 169 of the Securities Act (Nunavut).

Income trust conversion survey published

Stikeman Elliott LLP — Tue, 19 Jan 2010 10:17:44 -0500

A Harris/Decima survey of Canadian income trust executives was published today, revealing that 84% of trust executives expect that conversion to a corporation will trigger a reduction in distributions/dividends currently paid to investors. The survey, conducted on behalf of BarnesMcInerney Inc., Stikeman Elliott LLP and Computershare/Georgeson, surveyed 82 income fund executives during November/December 2009 in anticipation of legislation scheduled to come into effect on January 1, 2011 that will affect the tax advantage currently enjoyed by the approximately 165 income trusts currently operating in Canada. Andrew Willis discusses the survey and the hard decisions facing income trusts in today's Globe and Mail, stating that "[t]he overarching theme for trusts CEOs is that the coming year will mean walking a tightrope." According to Stikeman Elliott partner Simon Romano, quoted in Mr. Willis' article, "[i]n directing trust conversions, boards will have to select a dividend policy which will typically be based on a mix of factors, including expected free cash flow, tax pool availability, a balancing of where the company wants to fit on the growth vs. steady-state continuum, and the nature of the shareholder base."

For more information on conversions, see our Income Trust Conversion Guide, updated for 2010.

OSC releases January 2010 edition of The Investment Funds Practitioner

Stikeman Elliott LLP — Mon, 18 Jan 2010 10:30:50 -0500

The Ontario Securities Commission (OSC) has released the January 2010 edition of The Investment Funds Practitioner, a publication intended to assist those that regularly prepare public disclosure documents and applications for exemptive relief on behalf of investment funds. Authored by staff of the OSC's Investment Funds Branch, the Practitioner contains an overview of recent issues emerging from applications for discretionary relief, prospectuses and continuous disclosure documents. Specifically, the OSC provided a number of observations and practice points that may be of interest. Among other things, the publication considers the following:

Responding to "novel applications" for relief from the various conflict provisions under Ontario's Securities Act (Act) and National Instrument 81-102 Mutual Funds (NI 81-102) based on IRC approval. The OSC reminded filers that the Canadian Securities Administrators deliberately chose to maintain the various conflict provisions in local securities legislation and codify only limited exemptions in National Instrument 81-107 Independent Review Committee for Investment Funds. The OSC stated that it intends to complete reviews to assess how the IRC approval system is working with existing codified exemptions.
The OSC noted a number of "recurring issues" respecting the mergers and reorganizations of mutual funds, including applications missing required information and filers failing to properly factor in securities regulatory approval into the transaction planning process.
The OSC also noted that it generally does not require a parallel application for relief from the conflicts of interest prohibitions under the Act where relief is sought under NI 81-102 to facilitate fund on fund arrangements that do not comply with all the conditions in section 2.5(2) of NI 81-102. The OSC indicated that it is of the view that the exemption codified under section 2.5(7) of NI 81-102 still applies even where the fund has obtained an exemption from some of the conditions in section 2.5(2).
Filers were also reminded by the OSC that those wishing to receive a receipt for a (preliminary) prospectus that the (preliminary) prospectus and accompanying material should be received by the OSC on or before noon on the day the receipt is required.
The OSC noted that while it has granted relief to file a prospectus beyond the 90 day period, it encourages filers to make applications for this type of relief prior to the expiration of the 90 day period.