Canadian Securities Law

Amendments to instrument regarding designated rating organizations approved

Stikeman Elliott LLP — Thu, 23 May 2013 12:18:11 -0500

The OSC announced today that amendments to the registration, prospectus and continuous disclosure rules related to National Instrument 25-101 Designated Rating Organizations have received Ministerial approval. As we've previously discussed, the amendments are intended to fully implement the new regulatory regime surrounding designated rating organizations pursuant to NI 25-101 Designated Rating Organizations .

The amendments come into force on May 31, 2013.

Chicago Mercantile Exchange applies for exemption from clearing agency recognition requirement

Stikeman Elliott LLP — Thu, 16 May 2013 15:11:02 -0500

The Ontario Securities Commission announced today that Chicago Mercantile Exchange Inc. has applied for an exemption from the requirement to be recognized as a clearing agency on the basis that it is subject to an appropriate regulatory and oversight regime in its home jurisdiction. The OSC is thus publishing for comment a draft order that would provide such an exemption. The OSC's criteria for exemption from recognition are included as a schedule to the draft order and comments are being accepted until June 16, 2013.

OSC to hold crowdfunding roundtable

Stikeman Elliott LLP — Wed, 15 May 2013 09:00:12 -0500

The Ontario Securities Commission has announced that it will be hosting a roundtable discussion on June 11 to obtain input from investors regarding investing in small and medium sized enterprises and start-ups. As we discussed in December, the OSC is currently considering a number of new capital raising prospectus exemptions to address the desire among some in the investing community to increase access to capital for issuers and to increase investment opportunities. The comment period in respect of the OSC's most recent consultation paper on the subject ended on March 8. The topics for discussion at the roundtable, meanwhile, include crowdfunding, as well as the type of information investors would require in order to make investment decisions.

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

Stikeman Elliott LLP — Tue, 14 May 2013 08:17:27 -0500

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.

Insider trading amendments could impose "special relationship" where take-over "considered"

Stikeman Elliott LLP — Fri, 10 May 2013 12:00:41 -0500

Simon Romano -

As we discussed last week, the Ontario government recently released its 2013 budget plan, which included discussion of amending the Securities Act to clarify the statute's insider trading provisions. The text of the budget bill now provides further detail of the government's intentions.

Among the proposed amendments to the Act would be a change to 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 would be expanded to include not only persons and companies associated with those proposing to make a take-over bid of a reporting issuer (as is currently the case), 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 are also proposed. Thus, current provisions of the Act that prohibit persons or companies in a special relationship with a reporting issuer, and with knowledge of an undisclosed material fact or change, from trading in the issuer's securities would, subsequent to the amendments, also prohibit trading by those associated with a party considering or evaluating whether to make a take-over bid or become party to a similar transaction.

The changes appear intended to address an OSC decision released last year that limited the application of insider trading provisions in a case where an executive of a potential acquiror, began purchasing shares of a potential target after learning of his company's interest during a company golf tournament. Ultimately, the OSC found the executive not to have been in a special relationship because the company had not yet proposed a take-over.

Whether the amendments are ultimately adopted, however, remains to be seen. The amendments, and the budget bill as a whole, must still withstand the legislative process, which is more uncertain this year due to the governing Liberals' minority position at Queen's Park.

OSC to host roundtables on best interest duty

Stikeman Elliott LLP — Thu, 09 May 2013 15:28:49 -0500

The Ontario Securities Commission will be hosting two roundtables in June to discuss issues identified in the CSA Consultation Paper 33-403, which considers the imposition of a statutory fiduciary duty on advisers and dealers to act in the best interests of clients. Our own Ed Waitzer considered such international developments in a post of February 2011. A follow up panel discussion for investors and the industry will occur in July.

Amendments to prospectus rules approved

Stikeman Elliott LLP — Thu, 09 May 2013 13:52:04 -0500

The Ontario Securities Commission announced today that Ministerial approval has been received with respect to the prospectus rule amendments released earlier this year that are intended to clarify certain provisions, address gaps, streamline requirements and codify prospectus relief that has been granted in the past. Amendments to the requirements and related forms respecting scholarship plans, first announced in January, were also approved.

Most of the amendments come into force on May 14, 2013. Those regarding scholarship plans come into force on May 31.

OSC to hold hearings on proposed enforcement initiatives

Stikeman Elliott LLP — Tue, 07 May 2013 07:25:50 -0500

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.

Further analysis on limited disclosure relief for certain private placements by qualified non-Canadian issuers

Stikeman Elliott LLP — Fri, 03 May 2013 13:50:56 -0500

Ken Ottenbreit and Ralph Hipsher -

As we initially discussed in an earlier post, on April 23 the Canadian Securities Administrators issued a decision providing a specified group of dealers limited exemptive relief (the Relief) from certain disclosure requirements under Canadian securities laws otherwise applicable where a foreign prospectus or offering memorandum (a Foreign Offering Document) is delivered by a dealer to a Canadian “permitted client” in connection with a private placement of foreign securities in Canada.

While any efforts to streamline the disclosure requirements applicable to private placements into Canada are certainly welcome, the Relief has limitations and imposes specific compliance obligations. Although the Relief may be helpful in resolving some of the timing concerns associated with extending certain qualified foreign offerings to Canadian “permitted clients”, it also imposes a number of conditions and requirements that will require advance planning and monitoring to maintain eligibility and to ensure there are no time delays in the preparation and delivery of offering documents.

Among the significant conditions and requirements that may impede the usefulness of the Relief are the requirement to satisfy certain disclosure standards applicable to U.S. registered offerings, inter-syndicate restrictions applicable to dealers not qualified under the Relief, additional compliance obligations associated with the requisite client notice – return receipt requirement and the additional monthly reporting of transaction information to the Canadian securities regulators.

Dealers should consider whether relying on the existing market practices is preferable to meeting the conditions and requirements of the Relief. In some cases, it may be more cost effective and efficient to rely on the existing “Canadian wrapper” procedures.

Significantly, there is also a risk of fragmentation in market practice as dealers and syndicates decide whether and how to rely on the Relief. Issuers and dealers are not required to rely on the Relief and can conduct offerings in the same manner as they have done previously. Also, there are still a number of reasons why, for certain offerings, a form of Canadian “wrapper” or supplemental Canadian disclosure may be required or recommended, even under circumstances where the Relief is relied upon.

The Relief applies only to the dealers named therein. The Relief will come into effect sixty (60) days after April 23, 2013. This delay is designed to allow other dealers time to file and receive similar exemptive relief from the CSA. Dealers which do not file for similar relief will need to continue to be prepared to separately rely on the conventional Canadian wrapper form and process.

The Relief may work best in the context of a U.S. registered public offering. In certain other situations, reliance on the Relief may prove challenging as, for example, in the context of a private placement under U.S. securities laws or in connection with a non-U.S. offering, regardless of whether such offering is a public offering or private placement in the foreign jurisdiction.

Highlights

The following are some of the key features, requirements and limitations of the Relief:

Only applies to “foreign issuers”
Does not apply to “investment funds”
Does not provide an exemption from applicable Canadian mining/mineral disclosure
Does not apply to “reporting issuers” in Canada (i.e., issuers that are either public companies or subject to continuous disclosure obligations in Canada)
The offering must be either a U.S. registered offering or comply with disclosure requirements applicable to a U.S. registered offering regarding underwriter conflicts of interest (a legal opinion may be required)
The offering must be made primarily outside of Canada
Each dealer must be named in the Relief or have obtained similar relief
Each Canadian purchaser must be a “permitted client”
Each dealer must have delivered a specified notice to each Canadian purchaser
Each Canadian purchaser must have signed and returned the notice to each dealer
Each dealer must have delivered the required monthly report summarizing the dealer’s use of the Relief to its principal Canadian securities regulator

Scope of Relief

The Relief is not a blanket exemption applicable to all offerings by foreign issuers into Canada on a private placement basis and is only available to the specified dealers where all of the prescribed conditions are satisfied. It is very important to understand the limitations, conditions and requirements of the Relief.

Conditions to Reliance on the Relief

(i) Foreign Issuer / Non-Reporting Issuer Requirement

The Relief is limited to offerings by “foreign issuers” where the securities are being offered primarily outside of Canada. A “foreign issuer” is an issuer that:

is incorporated, formed or created under the laws of a jurisdiction other than Canada or a province or territory of Canada,
whose head office and principal place of business is located outside of Canada, and
that is not a “reporting issuer” in Canada.

An offering by an issuer that maintains a listing on an exchange in Canada, or that is otherwise subject to “reporting issuer” requirements in Canada as a consequence of an acquisition or other transaction will not be entitled to rely on the Relief.

The Relief does not extend to offerings by “investment funds”, including so called “mortgage REITs”.

(ii) Offering Must Meet U.S. Prospectus Disclosure Rules Regarding Underwriter Conflicts

For a Foreign Offering Document to qualify under the Relief, whether or not the offering is a U.S. registered offering, it must comply with the conflicts of interest disclosure requirements applicable to a U.S. registered offering (the U.S. Disclosure Requirement). Specifically, reliance on the Relief is conditioned on the Foreign Offering Document containing the disclosure mandated pursuant to section 229.508 of Regulation S-K (Reg. S-K) under the United States Securities Act of 1933, as amended, and FINRA Rule 5121.

As the Relief requires that conflicts disclosure contained in the Foreign Offering Document comply with the U.S. Disclosure Requirement, we expect that a legal opinion or certification confirming compliance with the U.S. Disclosure Requirement, may be necessary to confirm that the Foreign Offering Document complies with the U.S. Disclosure Requirement.

(iii) Advance Client Notice and Return Receipt Requirement

Reliance on the Relief requires that each dealer deliver to each prospective Canadian purchaser, prior to each dealer’s first reliance on the Relief, a notice in a form specified under the Relief and that such prospective purchaser execute and return a written acknowledgment and consent to reliance by each dealer on the Relief.

Furthermore, reliance on the Relief requires that all offers and sales into Canada made in reliance on a Foreign Offering Document be restricted to “permitted clients” only. As such, investment dealers, exempt market dealers and restricted dealers would not be permitted to offer or sell to “accredited investors” (who are not also “permitted clients”) under their respective registrations pursuant to a Foreign Offering Document prepared in reliance on the Relief.

(iv) Monthly Reporting of Trade Information to Canadian Regulators

On a monthly basis, each dealer relying on the Relief is required to deliver to its principal Canadian securities regulator a list of all private placements in Canada made in reliance on the Relief (this is in addition to the filing of the usual post-trade report). The list is required to include for each such distribution:

the name of the issuer,
the security distributed,
the total value of the offering in Canadian dollars,
the value in Canadian dollars of the securities distributed in Canada by the dealer and its affiliates,
the date each report of exempt distribution on Form 45-106F1 Report of Exempt Distribution (Form 45-106F6 British Columbia Report of Exempt Distribution) was filed with the applicable regulators, and
each jurisdiction in which a report of exempt distribution was filed.

(v) Post-Trade Reporting Requirements

Reliance on the Relief does not exempt dealers and issuers from the requirement to prepare and file a report of the exempt distribution, and to pay associated fees, in connection with the private placement of securities in Canada. Also, as a condition to relying on the Relief, all post-trade reports must be filed in electronic forms (no paper filings permitted in reliance on the Relief).

Scope of Relief – Not a Blanket Exemption from All Mandated Canadian Disclosure

The Relief is limited in scope and is not a blanket exemption from all applicable Canadian disclosure requirements. Issuers and dealers will need to continue to consider other disclosure requirements, such as disclosure applicable to mineral projects, resale restrictions, certain legending requirements, and, in Québec, the French language requirements.

In addition, dealers may want to preserve certain legal defenses by including in any Foreign Offering Documents distributed into Canada, Canada-specific supplemental disclosure containing applicable representations, warranties and other investor information specific to the Canadian marketplace.

Summary

Significantly, the Relief will apply to only certain qualifying offerings (assuming all conditions of the Relief are satisfied) and non -qualifying offerings will need to be done in accordance with existing market practice. Because the Relief imposes additional compliance and monitoring obligations, dealers should review the Relief and its potential impact on their participation in foreign offerings being extended into Canada. While the Relief will undoubtedly be useful to some dealers, issuers and investors for certain offerings, it is important that dealers which are actively offering foreign securities into Canada understand the conditions, requirements and limitations of the Relief, as well as existing market practices to determine the best way to ensure compliance with the Canadian offering rules.

We are working with various dealers to prepare the necessary documentation to file for similar relief and would be pleased to review and discuss the requirements, costs and timing.

Please also note, as we also discussed in our earlier post, that the Ontario Securities Commission recently published a Notice and Request for Comment dated April 25, 2013 that proposes amendments to OSC Rule 45-501 Ontario Prospectus and Registration Exemptions and National Instrument 45-106 Prospectus and Registration Exemptions that would change the rules relating to certain of the disclosure exemptions that are the subject of the Relief. The comment period is open for 90 days.

Please contact us if you have any questions or would like further information about these developments.

Categories of registration and business triggers under CSA's proposed derivatives registration regime

Stikeman Elliott LLP — Fri, 03 May 2013 13:44:47 -0500

Margaret Grottenthaler and Sumeet Thind -

As we discussed last month, the Canadian Securities Administrators Derivatives Committee recently published Consultation Paper 91-407 Derivatives: Registration, which contains regulatory proposals specific to the implementation of a registration regime for derivatives market participants in Canada. Under the Paper’s proposals, the imposition of “derivative-appropriate” registration requirements would be based on the type of activity conducted by derivative market participants regardless of the nature of the underlying asset.

The Committee developed the proposals in light of Canada’s G20 commitments to improve the regulation and oversight of OTC derivatives markets and with consideration of derivatives registration regimes in the U.S. and Europe. While the Committee also considered the existing securities regulatory framework, the proposed business triggers for derivatives registration and the requirements applicable to registrants would be substantially different than those applicable in the securities context, given the differences in the purpose of trading, the existence of risk-amplifying leverage in most categories of derivatives and the complexity of derivatives contracts.

Ultimately, the Paper discusses minimum requirements for each category of registration, namely those of (i) derivatives dealers; (ii) derivatives advisers; and (iii) large derivative participants.

Categories of registration

Derivatives Dealer

Persons carrying on the business of trading in derivatives or holding themselves out to be carrying on that business would be required to register as a derivatives dealer in each province and territory in which they conducted such business.

While the Ontario Securities Act contains a list of activities that are considered a “trade”, the Paper clarifies that certain activities such as the termination, material amendment, assignment, novation or disposition of a derivatives contract will also be considered a derivatives trade. Therefore, after inception, a derivatives trade will be considered to occur whenever there is a material change to the terms of the derivatives contract.

Further, a number of factors, largely derived from securities case law and regulatory decisions, would be considered when determining if a person is in the business of trading derivatives. The non-exhaustive list of factors that may suggest a business purpose or activity would include (i) the provision of services relating to the intermediation of trades between counterparties to derivative contracts; (ii) acting as a market maker by taking both a long and a short position in a derivative or category of derivatives; (iii) trading with the intention of being remunerated or compensated; (iv) contacting anyone to solicit derivatives trades; (v) providing clearing services to third parties; and (vi) engaging in activities similar to a derivatives dealer.

Under the factors provided, as with the analogous securities dealing registration requirements, dealing in derivatives does not have to be an entity’s primary business to be captured by the triggers proposed by the Committee.

Derivatives Adviser

Persons that carry on the business of advising others in relation to derivatives, or who hold themselves out to be in that business in any Canadian jurisdiction, would be required to register as a derivatives adviser. A person would be considered to be "advising" in relation to derivatives whenever they provide another person with any advice or direction relating to trading derivatives, including providing advice in relation to (i) the management of a portfolio of derivatives; (ii) the use of derivatives as an investment strategy or part of an investment strategy; and (iii) hedging strategies.

In determining whether a person was “in the business” of providing derivatives advice, a number of factors would be relevant, including whether the person was (i) directly or indirectly providing advice about derivatives trading activity with repetition, regularity or continuity; (ii) being, or expecting to be, remunerated or compensated; (iii) contacting anyone to solicit business relating to advising in derivatives trades; and (iv) engaging in activities similar to a derivatives adviser, including promoting a trading strategy or offering software that provided a client with guidance relating to the purchase of derivatives.

Large Derivatives Participant (LDPs)

According to the Paper, entities holding a “substantial position” in a derivative or category of derivatives, and whose exposure to derivatives markets results in counterparty exposure that could pose a serious risk to financial markets, should also be subject to registration. Registration under the LDP category would not be based on a business trigger. While the Paper does not provide one, the Committee recommended that consultation proceed to establish a threshold for this category of registrant.

Individual Representatives

The Committee also recommended that the new regime include the registration of individuals (i) where they are the ultimate designated person (such as the president or CEO), chief compliance officer or chief risk officer of a registrant; (ii) as a representative of a derivatives adviser where they provide clients with advice relating to derivatives, whether or not the client is a qualified party; and (iii) as a representative of a derivatives dealer where they provide services relating to trading to clients, whether or not the client is a qualified party.

Exemptions from requirement to register

The Paper proposes a number of exemptions from the registration requirement.

Dealers Providing Advice

A person registered as a derivatives dealer would be exempt from the obligation to register as a derivatives adviser where (i) the obligation to register as a derivatives adviser resulted solely from the provision of advice in relation to a derivatives trade; (ii) the advice was not in relation to an account over which that the derivatives dealer has discretionary trading authority; (iii) the derivatives dealer did not charge a fee for the provision of the advice; and (iv) the derivatives dealer had complied with all of the registration requirements applicable to a derivatives adviser.

Governments

The Paper proposes that government entities not be subject to an obligation to register. Further, crown corporations whose obligations were fully guaranteed by the applicable government would be exempted from registration as an LDP or as a derivatives dealer where their trading activity was restricted to trading as a counterparty with qualified persons. However, a crown corporation would not be exempt from a requirement to register where it (i) triggered registration as a derivatives adviser by advising entities that were not governments or crown corporations; (ii) triggered registration as a derivatives dealer and intermediated trades on behalf of clients that were not governments or crown corporations; or (iii) triggered registration as a derivatives dealer and trades with counterparties that were non-qualified parties.

Clearing Agencies

The Paper recommends that recognized clearing agencies (or those exempt from recognition) not be subject to a requirement to register as a derivatives dealer, derivatives adviser or a LDP where the obligation to register resulted solely from carrying on the ordinary business of a clearing agency. (There is already or will be a separate registration regime for clearers.)

Transactions with Affiliated Entities

The Committee recommends that the registration requirements not apply to persons based on dealing or advising activities solely with affiliates.

Uniform definition of derivative across CSA jurisdictions is needed

The Paper does not define what would constitute a “derivative” for the purposes of registration and, at present, no single, harmonized definition of derivatives products exists across CSA members. Legislation in many Canadian jurisdictions contemplates that an instrument meeting the general definition of derivative may be treated as a derivative, a security, or excluded in whole or in part from regulation. Moreover, some jurisdictions include derivatives in the definition of security, while other jurisdictions maintain a separate definition altogether.

In CSA Consultation Paper 91-301 relating to reporting to trade repositories, the Committee introduced the “Scope Rule” to resolve conflicts that arise when a contract or instrument meets both the definition of "derivative" and "security" under applicable provincial legislation. The Scope Rule purports to classify which contracts or instruments are to be regulated as derivatives, securities or outside the scope of both derivatives and securities legislation altogether. In this respect, Consultation Paper 91-301 can provide some insight as to which types of instruments the Committee may recommend to be considered derivatives for the purposes of triggering registration as a derivatives dealer or adviser. In any event, the Committee will need to induce a high degree of regulatory coordination, both within Canada and between Canadian and global authorities, to ensure that a uniform and consistent definition is applied under the new registration regime. The CSA received a number of comments on certain issues with that definition in the context of the proposed trade reporting rule.

Absence of de minimus exemption

Unlike under Dodd-Frank, there is no proposed exemption for a person that engages in a de minimus level of swap transactions. The amount of business an entity engages in will be factored into the determination of whether the entity is carrying on business as a dealer.

Potential for compliance with two registration regimes

Persons dealing in or advising on derivatives that have securities as their underlying asset will be subject to registration under both the proposed derivatives regime and the existing securities regime. The Committee states that all types of derivatives should be subject to a consistent regime regardless of whether or not such derivatives have securities as their underlying asset. The Paper thus recommends that steps be taken in order to streamline the registration process to ensure that such persons can be registered and regulated in an efficient manner.

Investment funds to be regulated by the securities registration regime

According to the Committee, investment fund managers should continue to be registered under the securities registration regime regardless of the nature of the investment fund or the assets held by the fund. However, an advisor to a fund who triggers the obligations outlined above would be subject to the derivatives advisor registration requirements, in addition to the securities registration regime, if such an adviser provided advice in relation to both derivatives and securities.

Third party regulators to carry out regulatory functions

The Paper proposes that the CSA rely on third-party regulators to carry out some or all of the regulatory functions of the new registration regime. The Committee has stated that these regulators could include foreign regulators and regulators responsible for regulating financial institutions (i.e. OFSI) and self-regulatory organizations (i.e. IIROC).

Specifically, under the Consultation Paper, foreign derivatives dealers and advisers subject to an equivalent registration regime in their home jurisdiction could be exempted from certain registration requirements, such as with respect to financial and solvency obligations, compliance and risk management systems and entity-level record keeping. In such cases, however, registration in the applicable Canadian jurisdictions would still be required.

Although substituted compliance or equivalence may resolve conflicts and duplication, it may not be the most appropriate solution in every case. As the OTC Derivatives Regulator Group recently noted, close consultation by the CSA with the relevant authorities in other jurisdictions will be necessary to ensure the efficacy of substituted compliance. The details regarding how substituted compliance will work in practice is expected to be discussed in future meetings of international regulators.

TSX-V extends private placement pricing requirements to August

Stikeman Elliott LLP — Fri, 03 May 2013 10:43:58 -0500

As we discussed earlier this year, the TSX Venture Exchange in January extended temporary relief from certain pricing requirements related to private placements. The TSX-V has now modified the relief and extended its application until August 31, 2013.

Specifically, the requirement that at least 75% of the private placement must be subscribed for by parties that are not related to the issuer has been changed to permit up to $200,000 in gross proceeds to be raised from related parties without any arm's length component. In cases where more than an aggregate of $200,000 is to be raised from related parties, at least 75% of the additional amounts must come from parties not related to the issuer. The relief also clarifies that capital pool companies may not rely on the relief.

Ontario budget hints at changes to securities legislation

Stikeman Elliott LLP — Fri, 03 May 2013 09:25:46 -0500

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.

TSX annual director election rule change begins affecting Australian incorporated issuers

Stikeman Elliott LLP — Thu, 02 May 2013 10:07:06 -0500

Quentin Markin -

On December 31, 2012, the Toronto Stock Exchange made amendments to the Company Manual to require, among other things, that TSX listed issuers elect all directors annually. The TSX subsequently issued Staff Notice 2013-0001 on February 22, 2013 to remind listed issuers of the new obligations. The new Section 461 has now been in effect for approximately four months, and while the changes regarding majority voting policies have attracted greater attention for Canadian domiciled issuers (see our posts of October 4 and October 12, 2012), foreign issuers (particularly those from Australia), have been far greater impacted by the annual director election changes.

In Australia, directors are already elected on a “for” or “against” basis, and not on a “for” or “withhold” basis and therefore already have a majority voting “policy” in effect by operation of the Australian Corporations Act 2001. However, the constitution (or articles) for a Corporations Act 2001 company would typically require that 1/3 of the directors resign at each annual general meeting and be re-elected. This means it would take 3 years to turn over the entire board.

In order to comply with the new TSX requirement, we expected that many Australian companies would need to give effect to an amendment to their constating documents – their constitution. As many Australian issuers have June 30 year-ends, these changes will come in the latter half of 2013. However, a number of ASX/TSX inter-listed issuers have December 31 year-ends and several have now made their AGM materials public on SEDAR and on the Australian Securities Exchange website.

An initial survey finds that constitutional changes have been put forward by Mirabela Nickel Ltd., Ivanhoe Australia Limited, Intrepid Mines Limited and Aurora Oil & Gas Limited at their upcoming shareholder meetings. Mawson West Limited has proposed that all of its directors be elected at its upcoming AGM without a constitutional change.

In the comment process associated with these rule changes, several comments were made suggesting these changes not apply to foreign issuers. The TSX responded with the change that if listed company shareholders did not approve, the TSX would not consider the issuer in breach, but the listed company would have to again put and recommend the changes to its articles to its shareholders within three years. The current shareholder meeting season in Australia will be an interesting test to see if foreign shareholders are prepared to approve the constitutional changes needed to comply with the new TSX rules.

The rule change does not affect companies listed on the TSX Venture Exchange.

Regulators provide limited relief to select applicants from certain disclosure requirements applicable to private placements and propose related rule amendments

Stikeman Elliott LLP — Thu, 25 Apr 2013 16:33:20 -0500

Ken Ottenbreit -

On April 23, 2013, the Ontario Securities Commission issued an exemptive relief order exempting certain U.S. broker-dealers from having to provide certain stipulated “wrapper” disclosure in connection with specified private placements. Typically, when securities are offered to Canadian purchasers on a prospectus exempt basis and an offering document constituting an “offering memorandum” is provided, disclosure that is required to be included in the offering memorandum under Canadian securities laws is provided in a Canadian wrapper.

Under the Order, the OSC (on behalf of other Canadian regulators) has exempted the applicant dealers from the requirement to include certain prescribed disclosure relating to statutory rights of action and underwriting conflicts. Notably, the relief is only available if the purchaser is a “permitted client” (as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations), the securities are offered primarily in a foreign jurisdiction and (i) the issuer is incorporated, formed or created under the laws of a foreign jurisdiction, has its head office or principal executive office outside of Canada and is not a reporting issuer in Canada, or (ii) the securities are issued or guaranteed by a foreign government.

Additional conditions include the requirement to deliver a prescribed form of notice to each prospective purchaser and obtain from the purchaser a written acknowledgement of and consent to the dealer’s reliance on the exemption, compliance in certain circumstances with disclosure requirements applicable to U.S. registered offerings, reporting on a monthly basis of the applicant’s reliance on the Order and filing of a report of trade in electronic format only. The Director of the OSC has also separately given the applicants permission to make certain (otherwise prohibited) listing representations and acknowledged that the requirement to notify purchasers of the collection of personal information only applies to individuals.

The relief will take effect sixty days after April 23, 2013 and will expire on the earlier of three years after the effective date or the date on which amendments are made to relevant securities legislation to provide substantially similar relief.

In the same context, earlier today the OSC published proposed amendments to OSC Rule 45-501 Ontario Prospectus Registration Exemptions and National Instrument 45-106 Prospectus and Registration Exemptions that would codify, to a large extent, the relief granted under the Order.

The proposed amendments would provide exemptions from the requirement to disclose the statutory rights of action available under the Securities Act (Ontario), the prohibition against making certain representations regarding listing or quotation of securities, and the requirement to provide notice to and obtain authorization from non-individual purchasers regarding the collection of personal information. Reliance on these exemptions would be subject to conditions similar to those set out in the Order. Relief from disclosure requirements relating to underwriting conflicts is not included in the proposals but will be separately considered.

While other Canadian regulators also confer statutory rights of action for misrepresentations in offering memoranda, disclosure of such rights is only mandated, in addition to Ontario, in Saskatchewan, Nova Scotia and New Brunswick. It remains to be seen whether the securities regulators in these jurisdictions will follow the OSC’s lead.

The OSC is accepting comments on the proposed amendments until July 24, 2013.

CSA release recommendations regarding derivatives registration regime

Stikeman Elliott LLP — Thu, 18 Apr 2013 16:00:58 -0500

The Canadian Securities Administrators today released the latest in a series of consultation papers considering the regulation of derivatives in Canada. Specifically, CSA Consultation Paper 91-407 considers the regulation of derivatives market participants through the implementation of a registration regime.

Under the recommended regime articulated by the paper, three categories of registration would be created, namely those of (i) derivatives dealers, being persons carrying on the business of trading in derivatives or holding themselves out to be carrying on that business; (ii) derivatives advisers, being those carrying on the business of advising others in respect of derivatives, or who hold themselves out to be in that business; and (iii) large derivative participants, being entities, other than derivatives dealers, that have a substantial aggregate derivatives exposure.

Those required to be registered under the proposed regime would then be subject to various requirements respecting such things as proficiency, solvency, honest dealing obligations, and gatekeeper and business conduct requirements in the case of derivatives dealers and advisers. Exemptions from registration requirements would also be available in certain circumstances. For example, clearing agencies would generally not have to register, and foreign derivatives advisers and dealers would be exempted from specific regulatory requirements where they are subject to equivalent requirements in their home jurisdictions.

The paper also recommends that registered entities that have clients or counterparties that rely on their advice be subject to additional registration requirements. Alternative proposals are considered where dealers are trading with non-qualified parties: one that would preclude dealers from entering into trades with counterparties that are non-qualified parties unless the counterparties receive advice from a registered derivatives adviser, and the second that would require that the dealer inform counterparties that are non-qualified that there is a conflict of interest.

According to the paper, if the first alternative is implemented, “representatives dealing with counterparties will not be required to be registered as all counterparties will either be qualified parties or will be represented by independent derivatives advisers.” In the case of the second alternative “a party entering into transactions with counterparties that are non-qualified parties will typically be considered to be in the business of trading derivatives unless that non-qualified party is represented by a derivatives dealer or adviser”. The CSA are seeking input on the appropriate definition of "qualified party". There is also a recommended exemption for crown corporations when dealing with qualified parties and not intermediating any trades.

Under the recommended proposals, an individual would have to register where the person is (i) the ultimate designated person, chief compliance officer or chief risk officer of the registrant; (ii) involved in providing clients with advice relating to derivatives; (iii) involved in providing trading services to clients as an intermediary to a trade; or (iv) involved in a trade with a counterparty that is a non-qualified party that is not represented by an independent derivatives adviser. The individual registration requirements would apply to frontline staff that deal with clients and those that manage or supervise such staff. Where individuals provide clients with advice, they would have to register whether or not the client was a qualified party.

The CSA are accepting comments on the consultation paper, including with respect to a number of specific questions regarding the paper's numerous recommendations, until June 17, 2013.

CSA report reviews performance of MFDA

Stikeman Elliott LLP — Wed, 17 Apr 2013 11:13:52 -0500

The Canadian Securities Administrators today released an oversight review report that reviews the performance of the Mutual Fund Dealers Association of Canada (MFDA) over the last few years. The report, which covers such topics as the MFDA's corporate governance, enforcement of members and policy-making procedures, ultimately concludes that the MFDA has met the terms and conditions of the applicable recognition orders granted by securities regulators. Areas identified for corrective action are also set out. According to the report, CSA Staff are generally satisfied with the MFDA's responses to stated concerns.

IIROC proposes guidance on management of stop loss orders

Stikeman Elliott LLP — Tue, 16 Apr 2013 09:00:41 -0500

Last week, the Investment Industry Regulatory Organization of Canada released draft guidance on the use and management of stop loss orders. While IIROC's 2011 guidance on best execution addressed the management of stop loss orders in an attempt to prevent such orders from executing at "clearly erroneous" prices, regulatory intervention has still been required in a number of cases.

According to IIROC, the disruption of a fair and orderly market could occur where the execution of an order would result in the trigger of a single stock circuit breaker or exceed the "no touch zone" limits for which there will generally be no regulatory intervention. With IIROC considering all stop loss orders without a reasonable limit price to be "inherently risky in fast moving markets", the guidance would encourage that Participants require limit prices on all stop loss orders, especially in cases of automated handling of stop loss orders.

The proposed guidance also considers the expectations when "booking" a stop loss order on a marketplace, the ongoing regulatory expectations respecting stop loss orders that have been booked, and the expectations if execution of a triggered stop loss order is handled manually. IIROC also states that while it is not prohibiting stop loss orders that when triggered become market orders, it is considering doing so in the future. For more information, see IIROC Notice 13-0106.

OSC proposes mandatory electronic filing of documents

Stikeman Elliott LLP — Thu, 11 Apr 2013 14:03:16 -0500

The Ontario Securities Commission today released a proposed rule that would mandate the filing of certain required documents with the Commission in electronic format. The rule would apply to, among other things certain applications made to the OSC, the calculation of excess working capital form, reports of exempt distribution (45-106F1 and 45-501F1) and, offering memoranda and amendments and notices and documents sent to the OSC under the secondary market civil liability provisions of the Securities Act. The requirement to file electronically would not, however, apply to documents already filed through SEDAR, SEDI or NRD.

While many of the applicable documents would continue to be filed in unstructured format once the new rule took effect, the OSC would eventually migrate to process online forms and structured data.

According to the OSC, mandatory electronic filing would streamline the submission process for market participants, improve data analysis, compliance and enforcement capabilities and reduce the time required to process documents.

Trade-for-trade reporting facility open for setting up required users

Stikeman Elliott LLP — Wed, 10 Apr 2013 09:40:51 -0500

As we discussed earlier this year, IIROC has announced that the requirement to report "trade-for-trade" extended failed trades will become effective on April 15, 2013. Yesterday, IIROC provided an update regarding implementation, announcing that firm administrators can access the system between April 9 and April 15 to set up the required users in advance of implementation. For more information, see IIROC Notice 13-0100.

SEC comments on corporate disclosures on social media

Stikeman Elliott LLP — Thu, 04 Apr 2013 16:45:32 -0500

Kaleb Honsberger -

Earlier this week, the U.S. Securities and Exchange Commission released a report of its investigation regarding whether Netflix and its CEO, Reed Hastings, violated certain securities regulations prohibiting the selective disclosure of corporate information when Hastings posted a comment on his personal Facebook page regarding the achievement of a corporate milestone.

In doing so, the SEC considered the disclosure of corporate information on social media generally, ultimately finding that its 2008 guidance, which discusses the distribution of information on corporate websites, also applies to corporate disclosures made through social media channels such as Facebook and Twitter. Specifically, the SEC stated that where it is reasonably foreseeable that the recipients (securities professionals and/or shareholders) of such information will trade on the basis of such information, it must be disseminated in a manner reasonably designed to provide broad non-exclusionary distribution to the public. To achieve this, issuers must take sufficient steps to alert investors, the market and the media as to the channels that will be used for the dissemination of material, nonpublic information. As an example, the 2008 guidance encourages periodic reports or press releases to include web site addresses or other information regarding steps investors or the public can take to be in a position to receive important disclosure.

As such, the SEC does not preclude the use of social media sites to distribute material, nonpublic information so long as appropriate notice regarding the use of such sites has been made to investors. To this end, the SEC report cautions that issuers are expected to “rigorously” examine factors indicating whether a particular channel is a “recognized channel of distribution” for communicating with investors. While each case will be fact specific, in most cases (as in the Netflix example) disclosure of material nonpublic information on a personal Facebook page without advance notice is unlikely to qualify as an acceptable method of distribution even if the individual in question has a large number of subscribers or contacts.

In Canada, regulators have not specifically addressed issuer disclosure through social media, however, principles governing selective disclosure are set out in National Policy 51-201 Disclosure Standards. For TSX-listed companies, the TSX has published its own Electronic Communications Disclosure Guidelines. Staff of the Canadian securities administrators have also provided guidance on the use of social media by portfolio managers, noting that firms and registered individuals contemplating the use of social media should consider, among other things, establishing appropriate policies and procedures for the review, supervision, retention and retrieval of materials posted on social media websites.