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IIROC Releases UMIR Exemption Guidelines

On January 27, 2012, the Investment Industry Regulatory Organization of Canada (IIROC) issued Notice 12-0029, providing guidance in connection with the processes that must be followed to obtain exemption from, or an interpretation of, a provision of the Universal Market Integrity Rules (UMIR). IIROC guidelines state that such requests may be sought by electronic means, through email, and by telephone. A request must generally be accompanied by certain contextual information, including facts giving rise to same. IIROC staff will follow up with a written ruling in cases where an exemption request has been allowed or denied. The notice also provides guidance as to circumstances under which IIROC may grant an exemption with respect to requests that a dealer be able to act as principal or agent in respect of an “off-marketplace” trade. Generally, the granting of such exemptions depends on whether the execution of the trade on a marketplace would be disruptive of a fair and orderly market or impractical.

IIROC Releases UMIR Exemption Guidelines

Exemptions to New BC 45-106F6 Reporting

Effective October 3, 2011, the British Columbia Securities Commission adopted a new form for reports of exempt distribution, Form 45-106F6 British Columbia Report of Exempt Distribution. An issuer distributing securities in British Columbia under certain prospectus exemptions is required to use the new Form 45-106F6 for distributions occurring on or after October 3, 2011. On December 9, 2011, the Commission ordered, under BC Instrument BCI 45-533 Exemptions from Form 45-106F6 requirements, that certain issuers and underwriters are exempt from Form 45-106F6 requirements. Certain of these exemptions allow certain issuers and underwriters to file the old Form 45-106F1 Report of Exempt Distribution, while others relieve issuers and underwriters from the insider information requirements in item 4 of Form 45-106F6.

Exemptions in BCI 45-533 include:

• investment funds;
• non-reporting issuers, provided that the distribution is made only to permitted clients;
• foreign public issuers, subsidiaries of foreign public issuers and subsidiaries of reporting issuers; and
• non-reporting issuers (re: certain insider information, provided they complete the table in item 4 of Form 45-106F6 for each director, executive officer, control person and promoter of the issuer).

Some of the above exemptions are also available to underwriters distributing securities of non-reporting issuers. Issuers or underwriters wanting to rely on any such exemptions must ensure that they comply with the specific terms and conditions set out in the particular exemption.

Exemptions to New BC 45-106F6 Reporting

SEC Amends “Accredited Investor” Definition

The United States Securities and Exchange Commission (“SEC”) has recently adopted amendments to the accredited investor standards in the rules under the Securities Act of 1933 (“U.S. Securities Act”) in order to conform to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Effective February 27, 2012, the definition of “accredited investor” in the rules under the U.S. Securities Act will exclude the value of a person’s primary residence for purposes of determining whether the person qualifies as an “accredited investor” on the basis of having a net worth in excess of US$1 million.

The accredited investor exemption in Canada may also be subject to amendment in the near future. As discussed in a previous post, the Canadian Securities Administrators (“CSA”) are in the process of reviewing certain prospectus exemptions, including the accredited investor exemption and the $150,000 minimum amount exemption. In connection with the CSA’s review, the Ontario Securities Commission (“OSC”) has announced three upcoming roundtable discussions to obtain input from investors, issuers, registrants and professional advisors as to whether any changes to the prospectus exemptions may be appropriate. The roundtable discussions will take place on February 2, February 8 and February 13, 2012.

SEC Amends “Accredited Investor” Definition

OSC Considers Changes to Related Party Transaction Rules

The Ontario Securities Commission (“OSC”) is currently considering two significant policy initiatives affecting mergers & acquisition transactions in Canada. As discussed in a previous post, the first initiative relates to a possible standalone rule in respect of poison pills. The second policy initiative discussed in the recent OSC panel discussion held at the Toronto Board of Trade would amend the existing rules governing related party transactions in order to address current “process defects” in conflict management and to provide additional protections for minority shareholders.

Under the draft proposal, an issuer contemplating a related party transaction would be required to establish a special committee of independent directors, which committee would be required to negotiate or supervise the negotiation of the transaction terms and evaluate the fairness of the transaction. The special committee would be required to either (i) recommend that the board support and that shareholders vote in favour of the transaction, or (ii) deem the transaction to be fair to shareholders notwithstanding that the special committee does not make a recommendation in favour of the transaction. The determination by the special committee would be supported by full disclosure regarding the committee’s procedure and reasoning. The new regime would also lower the transaction value triggering a shareholder vote from the current threshold of 25% of market capitalization of the issuer to 10% of market capitalization of the issuer.

According to Mr. Naizam Kanji, Deputy Director of Corporate Finance at the OSC, the proposal could also include a clarification and broadening of the scope of the definition of related party transactions.

OSC Considers Changes to Related Party Transaction Rules

OSC Considers Standalone Rule on Poison Pills

In a recent panel discussion at the Toronto Board of Trade, Naizam Kanji, Deputy Director of Corporate Finance at the Ontario Securities Commission (the “OSC”) stated that the OSC is currently considering the implementation of a standalone rule in respect of poison pills.

Currently, poison pills are reviewed on a case by case basis, an approach which Mr. Kanji described as “problematic”. Under the new regime, poison pills would be removed from the current defensive tactics policy (NP 62-202) and companies would be permitted to use poison pills to block unsolicited bids provided that the poison pills were approved by shareholders at the most recent annual general meeting or in the face of an unsolicited bid. The new regime would allow poison pills to remain unchallenged provided that the necessary shareholder approval had been obtained and shareholders would be permitted to remove poison pills on a vote in favour of doing so.

OSC Considers Standalone Rule on Poison Pills

MOU between OSC and FINRA approved by Ontario Minister of Finance

On December 23, 2011, the Ontario Securities Commission (the “OSC”) announced that the Minister of Finance approved the Memorandum of Understanding (the “MOU”) between the OSC and the United States Financial Industry Regulatory Authority, Inc. (“FINRA”) pursuant to section 143.10 of the Securities Act (Ontario). As discussed in a previous post, the MOU is intended to facilitate the exchange of information between the OSC and FINRA on firms and individuals that are under their common supervision, with a focus on enforcement-related matters.

The MOU came into effect in Ontario on December 13, 2011.

MOU between OSC and FINRA approved by Ontario Minister of Finance

Supreme Court of Canada Rules on the Proposed Federal Securities Act

On December 22, 2011, the Supreme Court of Canada released a ruling on the proposed federal Securities Act, and by extension, the formation of a national securities regime. The ruling comes after the Government of Canada has sought an advisory opinion from the Court as to whether the proposed federal Securities Act falls within the legislative authority of the Parliament of Canada. The Supreme Court ruled that the proposed Act as presently drafted is not valid under the general branch of the federal power to regulate trade and commerce under s. 91(2) of the Constitution Act, 1867.

Supreme Court of Canada Rules on the Proposed Federal Securities Act

British Columbia Court of Appeal Upholds Jurisdiction of the British Columbia Securities Commission

The British Columbia Court of Appeal (the “Court”) has ruled that the British Columbia Securities Commission (the “BCSC”) has the jurisdiction to adjudicate enforcement proceedings against a person who trades on the TSX Venture Exchange (the “Exchange”) regardless of their location. This decision provides an appellate level court precedent upholding a broad approach to the jurisdictional scope of the BCSC’s enforcement activities and could have wide ranging impacts on extraterritorial securities regulatory enforcement actions in Canada.

READ FULL ARTICLE

British Columbia Court of Appeal Upholds Jurisdiction of the British Columbia Securities Commission

Amendments to the Statement of Executive Compensation Form

On October 31, 2011, various amendments to Form 51-102F6 – Statement of Executive Compensation (“Form 51-102F6”) applying to financial years ending on or after October 31, 2011, came into force. The amendments are intended to improve the information issuers provide investors relating to key risks, governance and compensation matters.

This article highlights three of the material amendments to the compensation discussion and analysis disclosure required by Form 51-102F6.

READ FULL ARTICLE

Amendments to the Statement of Executive Compensation Form

Canadian Securities Regulators Propose to Ease Restrictions on Marketing Prospectus Offerings

The Canadian Securities Administrators have published for comment significant proposed changes to their rules and policies governing the pre-marketing and marketing of prospectus offerings, other than mutual fund offerings. The changes, if enacted, would loosen some of the current restrictions that limit the marketing activities of investment dealers involved in public offerings and clarify the positions of the regulators in certain areas.

A summary of the main proposals is set out below. Reference should be made to this link for further details:

http://www.osc.gov.on.ca/en/SecuritiesLaw_rule_20111125_41-101_rfc-pro-amd-pre-marketing.htm

“Testing of the Waters” Pre-marketing Exemption for IPO Issuers

Investment dealers would be allowed to communicate with “permitted institutional investors” to determine interest in a potential initial public offering, subject to certain conditions related to confidentiality and record keeping. The definition of a “permitted institutional investor” would include a number of the types of institutional investors that are “accredited investors” for purposes of prospectus exemptions under Canadian securities laws. The new accommodation would not be available for issuers that are already public companies in a foreign jurisdiction.

Bought Deal Exemption Changes and Clarifications

An issuer and underwriter would be permitted to amend their bought deal agreement to increase the size of the offering under certain conditions. The increase would be limited to a specified percentage of the original size of the offering, but that percentage has not been determined by the regulators yet. The preliminary prospectus would still have to be filed and receipted within four business days of the original agreement, and the enlarged offering would have to be at the same price as the original offering. It is also proposed that additional underwriters would be allowed to join the bought deal syndicate under specified conditions and that the pre-marketing exemption for bought deals would not be available if the bought deal agreement contained a market-out clause.

Additional Guidance on When a Distribution Commences

It is proposed that additional guidance will be provided as to when the securities regulators consider a distribution of securities to have commenced, triggering the marketing restrictions. In particular, the current policy’s concept of discussions of “sufficient specificity” between an underwriter and an issuer would be expanded upon with examples.

Term Sheet for Bought Deals Before Filing of Preliminary Prospectus

Investment dealers would be permitted to provide a term sheet to permitted institutional investors between the time of the announcement of a bought deal and time of the filing of the preliminary prospectus if the term sheet contained only information that was in the bought deal press release or the issuer’s continuous disclosure record, and certain other conditions were met. The term sheet would have to be filed with the securities regulators before its use but would not be made public on SEDAR until the preliminary prospectus was receipted.

Term Sheet During Waiting Period

Investment dealers would be permitted to provide a term sheet to prospective purchasers during the period between the issuance of the preliminary and final prospectus receipts (the “waiting period”) to provide for a greater range of marketing communications. This term sheet would be required to contain only information that was also in the preliminary prospectus, and there would be additional conditions to its use. The term sheet would have to be filed on SEDAR before its use.

Green Sheets

Investment dealers would continue to be permitted to provide traditional green sheets to their registered representatives during the waiting period, but green sheets distributed to the public would be considered “term sheets” and would be subject to the prescribed conditions to the use of term sheets.

Road Shows

Specific requirements would be prescribed for road shows held during the waiting period. All information in a road show would have to be contained in the preliminary prospectus, except for comparables (information that compares the issuer to other issuers) in the case of a road show confined to permitted institutional investors. Written materials distributed to prospective purchasers at a road show would be subject to the same rules that would apply to term sheets, except for comparables in the case of a road show confined to permitted institutional investors. Among other things, this would mean that the materials would have to be filed on SEDAR before they were distributed.

Marketing after the Final Prospectus Receipt

Term sheets and road shows following the issuance of a receipt for the final prospectus would be subject to requirements similar to those that applied during the waiting period.

The Canadian Securities Administrators will accept comments on the proposals until February 23, 2012.

Canadian Securities Regulators Propose to Ease Restrictions on Marketing Prospectus Offerings

CSA Review of Prospectus Exemptions

On November 10, 2011, the Canadian Securities Administrators (the “CSA”) announced that they are reviewing the $150,000 minimum amount prospectus exemption and the accredited investor prospectus exemption.

The review has been initiated as a result of the global financial crisis and recent international regulatory developments. The CSA is engaging in the consultation to identify any issues that stakeholders may have about the use of the exemptions and to obtain information that will assist in deciding whether changes to the exemptions are necessary or appropriate.

READ FULL ARTICLE

CSA Review of Prospectus Exemptions

Draft Reduction of Carbon Dioxide Emissions from Coal-Fired Generation of Electricity Regulations

As part of the Government of Canada’s plan to regulate carbon emissions, sector by sector, the Government of Canada recently released the Draft Reduction of Carbon Dioxide Emissions from Coal‐Fired Generation of Electricity Regulations (the “Draft Regulations”). In summary, the Draft Regulations aim to phase out the use of coal‐fired generation units, unless such units are associated with carbon capture storage systems (“CCS”) that enable such generation units to meet the intensity limits set by the Draft Regulations. This raises issues for domestic coal producers that supply coal‐fired electrical energy generation units.

The Draft Regulations
The Draft Regulations apply to coal‐fired electricity generation units that have been characterized as either (i) old, (ii) new, or (iii) existing:
• “Old unit” means a unit that has reached the end of its useful life but continues to produce electricity. Generally speaking, end of useful life is defined as the later of 45 years from the commission date or the end of their power purchase agreement applying to that unit.
• “New unit” means a unit, other than an old unit, whose commissioning date is on or after July 1, 2015.
• “Existing unit” means a unit that is not an old unit (so has not reached the end of its useful life) and is not a new unit (so had a commissioning date before July 1, 2015).

To read the complete article click here.

Draft Reduction of Carbon Dioxide Emissions from Coal-Fired Generation of Electricity Regulations

Proposed National Instrument 51 103 (“NI 50 105”)

As part of this proposed national instrument, I note that a resulting amendment is being proposed to National Instrument 43 101 (“NI 43 101”) with respect to a filing of a short form prospectus.

As you are no doubt aware, the recent changes to NI 43 101 allowed for filing of the short form prospectus without a current report being filed so long as the report was subsequently filed within a specified period of time.  The proposal under NI 51 103 to amend this provision only for venture issuers imposes a difficult situation in that venture issuers would be forced to comply with this provision whereas an issuer on the TSX would not.

One of the intentions of the amendment to NI 43 101 was to allow short form prospectuses, which are done often on a very short timeline, to take place in order that an issuer can take advantage of a financing which might not be available if it were forced to file a technical report where there had been a material change to a material property prior to a receipt being issued.

It seems that this proposed provision would take away that advantage to an issuer in the event that it were to file a short form prospectus and the proposed amendment to NI 43 101 would hardly be conducive to assisting issuers to raise capital. This is likely to result in lost opportunities for junior issuers to raise capital particularly when it is difficult enough to do in the current capital markets for such issues.

To view complete proposal click here.

Proposed National Instrument 51 103 (“NI 50 105”)

Omnibus / Blanket Order Exempting Registrants from Certain Provisions in Respect of National Instrument 31-103

On September 28, 2011, the Canadian Securities Administrators (“CSA”) published Staff Notice 31-329 (the “Notice”) issuing orders from several CSA members to provide relief from certain provisions in respect of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”).

Since NI 31-103 came into force, the CSA received applications for exemptive relief of certain provisions of NI 31-103. The Notice outlines orders issued or extended by certain CSA members related to the following:

  • the requirement to register when trading in short-term debt instruments;
  • the restrictions on the registration exemptions for international dealers and international advisers in sections 8.18 [international dealer] and 8.26 [international adviser] of NI 31-103; and
  • the requirement in section 14.2(1) of NI 31-103 to provide relationship disclosure information.

The Notice summarizes the orders and related staff positions that have been issued by CSA members in connection with NI 31-103. The Notice also outlines the staff positions of certain CSA members who did not issue similar orders in connection with the above noted provisions of NI 31-103.

Omnibus / Blanket Order Exempting Registrants from Certain Provisions in Respect of National Instrument 31-103

IFRS Transition – Prospectus Issues

On September 29, 2011, the Canadian Securities Administrators published Staff Notice 41-306 (the “Notice”) in response to inquiries about the financial information that must be included in a prospectus during the time of an issuer’s transition to IFRS. The purpose of the Notice is to outline the requirements with respect to Q1 IFRS transition information – being the opening statement of financial position as at the date of transition to IFRS, including IFRS 1 reconciliations for the date of transition to the most recent annual period.

The Notice provides insight on the differences between the financial disclosure requirements for Q1 IFRS transition information in an initial public offering (“IPO”) prospectus as opposed to a short form or non-IPO long form prospectus.

Specifically, the Notice confirms that Q1 IFRS transition information is required to be included in all IPO prospectuses but not in short form prospectuses or non-IPO long form prospectuses. As such, an issuer filing an IPO prospectus with Q2 or Q3 interim financials is still required to include either Q1 IFRS transition information or the entire Q1 IFRS financial report. The Notice also discusses accounting principles for financial statements in prospectuses filed in the first year after transition.

IFRS Transition – Prospectus Issues

Proposal to Make QPs Submit to Jurisdiction

The Canadian Securities Administrators (“CSA”) published, on July 15, 2011, proposed amendments to NI 41 101, General Prospectus Requirements and Companion Policy 41 101CP to NI 41 101 together with other miscellaneous amendments to related instruments. The 90 day comment period expires October 15, 2011.

One of the proposals is to further extend the requirement to file a non issuer “submission to the jurisdiction, and appointment of an agent for service” form to all foreign experts including qualified persons. It should be noted that these persons are already liable under the CSA statutory liability regime for misrepresentations in the prospectus that are derived from the report, opinion or statement.

The proposed amendments to submit to the jurisdiction would also apply to all foreign directors of an issuer.

To read the complete article click here.

Proposal to Make QPs Submit to Jurisdiction

ASX Launches Review of Reserve and Resource Disclosure for Mining and Oil and Gas Companies

On October 5th, 2011, the Australian Securities Exchange (“ASX”) issued a consultation paper in respect of requirements for public reporting of exploration information, Mineral Resources, Ore Reserves and production targets for listed mining companies. The review seeks to enhance the quality of, and confidence in, reported information and promote thorough, balanced and consistent disclosure. The ASX is seeking comments by January 27, 2012.

The resource industry continues to be a significant factor on the ASX and in the Australian marketplace with

  • approximately 45% of the number of listed ASX companies being involved in mining and oil and gas,
  • a market capitalization of $365 billion and $78 billion, in the mining and oil and gas sectors respectively, as at August 31, 2011, and
  • more than 400 new junior resource company floats during the past 5 years.
ASX Launches Review of Reserve and Resource Disclosure for Mining and Oil and Gas Companies

B.C. Securities Commission Adopts Additional Disclosure Requirements for Private Placements

The British Columbia Securities Commission (the “BCSC”) has adopted amendments (the “Amendments”) to National Instrument 45-106 – Prospectus and Registration Exemption (NI 45-106), which will take effect on October 3, 2011. Among the implemented changes, the Amendments will introduce the following:

  • Form 45-106F6 British Columbia Report of Exempt Distribution (the “New BC Form”). The New BC Form will replace the existing form, Form 45-106F1 Report of Exempt Distribution (“Form 45-106F1”);
  • amendments to National Instrument 45-106 Prospectus and Registration Exemptions (the rule amendments);
  • amendments to Companion Policy 45-106CP (the policy amendments); and
  • consequential amendments to BC Companion Policy 13-502CP Electronic filing of reports of exempt distribution.

The BC Form will distinguish British Columbia from other Canadian jurisdictions, which will continue to use Form 45-106F1, thereby requiring an issuer or underwriter to file a separate form in British Columbia for exempt distributions that take place in British Columbia and one or more other jurisdictions of Canada.

However, pursuant to two concurrent orders from the BCSC published on September 23, 2011, certain exemptions to the Amendments have been adopted including:

  • an exemption from the New BC Form for investment funds and foreign issuers; and
  • an exemption for use of information by representatives of the media.

A copy of the New BC Form is available on the BCSC website.

Copies of the two BCSC orders referenced above are available on the BCSC website:

45-533 Exemption from Form 45-106F6 requirements for investment funds and foreign public issuers

45-532 Exemption for use of information by representatives of the media

B.C. Securities Commission Adopts Additional Disclosure Requirements for Private Placements

Implementation of New Personal Information Form and Declarations

Effective September 9, 2011, the TSX Venture Exchange (“TSXV”) has implemented a new Form 2A Personal Information Form (the “New PIF”) and Form 2C1 Declaration (the “New Declaration”) which, subject to a transition period, will replace the existing Form 2A (the “Old PIF”) and Form 2C1 (the “Old Declaration”). The New PIF and New Declaration have been harmonized with the Toronto Stock Exchange’s (“TSX”) new form of Personal Information Form (TSX Form 4) and Declaration (TSX Form 4B), which are also being implemented effective September 9, 2011.

The TSXV will continue to accept the Old PIF and Old Declaration from filers until December 31, 2011.

The New PIF and New Declaration are available on the TSXV’s website.

Implementation of New Personal Information Form and Declarations

CSA Adopts Amendments to Form 51-106F6 – Statement of Executive Compensation

The Canadian Securities Administrators (CSA) have adopted amendments to Form 51-102F6 – Statement of Executive Compensation which will apply in respect of financial years ending on or after October 31, 2011. The amendments come largely as a result of CSA Staff’s targeted compliance review of executive compensation disclosure and recent international developments in the area of executive compensation. The amendments range from drafting changes to clarify existing disclosure requirements to new substantive requirements. The substantive amendments to Form 51-102F6 include:

  • requiring a company that relies on the exemption from disclosing performance goals or similar conditions in its Compensation Discussion and Analysis (CD&A) on the basis that disclosure would “seriously prejudice the interests of the company” to explicitly state that it is relying on the exemption and explain why disclosing the relevant performance goals or similar conditions would seriously prejudice the company’s interests;
  • requiring companies to disclose whether the board of directors has considered the implications of the risks associated with the company’s compensation policies and practices;
  • requiring companies to disclose whether any named executive officer (NEO) or director is permitted to purchase financial instruments that are designed to hedge or offset a decrease in the market value of equity securities granted as compensation or held, directly or indirectly, by the NEO or director;
  • requiring increased disclosure of information about compensation advisors retained by the company, including a description of the advisor’s mandate, any other work performed for the company and a breakdown of all fees paid to compensation advisors for each service provided; and
  • requiring companies to disclose the methodology used to calculate grant date fair value of all equity-based awards, including key assumptions and estimates used for each calculation and why the company chose that methodology, regardless of whether there are any differences with the accounting fair value.
CSA Adopts Amendments to Form 51-106F6 – Statement of Executive Compensation