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Canadian Securities Regulatory Monitor

News and Insight

TSX’s New DRIP Rules Now in Effect

Posted in Corporate Finance, Industry News
Heidi GordonAndrew Parker

Effective September 1, 2016, the Toronto Stock Exchange adopted new rules governing dividend / distribution reinvestment plans, which apply to new plans, and amendments to existing plans.

Effective September 1, 2016, the Toronto Stock Exchange (“TSX”) adopted new rules governing dividend / distribution reinvestment plans (“DRIPs”). The new rules are reflected in amendments to Section 6.17.1(c) of the TSX Company Manual.

Prior to the amendments coming into effect, there were no specific requirements applicable to DRIPs in the TSX Company Manual; instead companies and their legal counsel would reach out to the TSX on an ad hoc basis for guidance on implementing a DRIP. The new rules formalize the process.

Application of the New Rules

The new rules apply to all new DRIPs that allow existing securityholders to either: (1) reinvest their cash dividends or distributions by purchasing additional TSX-listed securities, or (2) elect to receive additional TSX-listed securities in lieu of cash dividends or distributions. The new rules do not apply to DRIPs that provide for the payment of dividends or distributions solely with securities purchased on the secondary market.

The new rules only apply to existing DRIPs that were implemented prior to September 1, 2016 if and when such DRIPs are amended. The mere listing of additional securities under an existing DRIP, without an amendment to the DRIP, does not constitute an amendment.

New and existing DRIPs continue to be governed by Canadian securities laws.

Key Features of the New Rules

Under the new rules:

  • securities cannot be issued under a DRIP for a price lower than the market price (i.e. the volume weighted average trading price for a period of between 5 and 20 trading days), less a 5% discount;
  • fractional securities that may result from a DRIP must be addressed;
  • all of a company’s Canadian securityholders must be permitted to participate in the DRIP;
  • new DRIPs, and amendments to existing DRIPs, must be submitted to the TSX (along with certain ancillary documentation, including an opinion of legal counsel) for approval by the TSX at least 5 business days prior to when the DRIP or the amendments are intended to be effective;
  • a company must apply to list a sufficient number of securities to cover securities to be issued under the DRIP, and pay the listing fees in connection therewith; and
  • the TSX must be notified, and a press release must be issued, each time a company proposes to suspend, terminate, resume or reinstate its DRIP.

More Information

Implementing a DRIP can be beneficial to both a company and its securityholders. It can allow a company to preserve cash and encourage long-term investment in the company’s securities. However, prior to implementing a DRIP, TSX-listed companies should understand their obligations under the new rules, as well as under Canadian securities law requirements.

CSA Sets Out Priorities for 2016-2019

Posted in Advisors, Broker-Dealers, Compliance and Supervision, Continuous and Timely Disclosure, CSA, Enforcement, Exempt Market Dealers, Investment Funds, Mutual Funds, Registrants
Omar SolimanRene SorellCristian Blidariu

The Canadian Securities Administrators (CSA) published on July 7, 2016 their priorities for the three-year period 2016 to 2019 under four categories: “Enhanced Investor Protection”, “Fair and Efficient Markets and Reduction of Risks to Market Integrity”, “Enhancement of Enforcement Effectiveness” and “Enhancement of Information Technology”.

The CSA states its strategic objectives without once mentioning the possible impact on it of the proposed national Cooperative Capital Markets Regulatory Authority (CCMRA) some of its members support. On July 22, it was announced that the CCMRA is expected to be operational in 2018.

Enhanced Investor Protection

The CSA proposes to enhance investor protection through further study of embedded compensation arrangements for investment funds, such as mutual funds, targeted regulatory reforms in the advisor-client relationship, and improving the Canadian proxy voting infrastructure through a clarification of the roles and responsibilities of key entities to support accurate, reliable and accountable meeting vote reconciliation.

Fair and Efficient Markets and Reduction of Risks to Market Integrity

Key initiatives under this heading include the close monitoring of trends and levels of compliance by issuers and registrants alike in the prospectus exempt markets, improving access, transparency and fairness in the fixed income market, finalizing and implementing an OTC Derivatives regulatory framework, improving collaboration and communication with market participants on cybersecurity issues and monitoring and assessing the implications of fintech innovations. A targeted review of some corporate governance topics such as director independence is also planned.

Enhancement of Enforcement Effectiveness

The CSA’s priorities relating to the enforcement of Canada’s securities laws include developing and implementing new marketplace surveillance and analytical systems and strengthening enforcement technology capabilities and strategies.

Enhancement of Information Technology

The final grouping of priorities focuses on a far-reaching project by CSA members to replace various service providers (including SEDAR, SEDI, National CTO Database, NRD and others) with a single, secure filing system for regulators and market participants.

The First FinTech Stock Index is Announced

Posted in Fintech
Ana BadourGenevieve PintoHeidi GordonJake Irwin

The first major index devoted solely to U.S. publicly traded financial technology companies is here. According to recent articles by BusinessWire and the Wall Street Journal, investment bank Keefe, Bruyette & Woods (KBW), together with Nasdaq Inc. are now offering the “KBW Nasdaq Financial Technology Index”.

According to the WSJ article, KBW and Nasdaq Inc. define “fintech” using 3 criteria:

  1. the companies primarily sell financial services;
  2. the companies are not predominantly brick-and-mortar oriented; and
  3. the key income generator for these companies is fees, not interest on loans or deposits.

The 49 companies currently in the KBW index include a significant number of more established financial technology businesses, including major credit card companies, ratings agencies and credit bureaus, data services and other financial technology heavyweights. The criteria applied by KBW may exclude some technology service providers and certain online lenders that are thought of as “fintech”, while capturing more financial technology incumbents that are sometimes overlooked in current discussions of “fintech” as a new phenomenon.

Publicly traded fintech companies are more common in the US than Canada. We expect to see an increase in the number of fintech IPOs on both sides of the border in the next several years, given the rapid growth of many earlier stage fintech companies.

If you’re thinking of buying or selling a fintech target, check out our recent blog post on due diligence issues unique to fintech M&A.

For more information about our firm’s Fintech expertise, please contact our Fintech Group.

2016 CSA Continuous Disclosure Review: Mistakes to Avoid and Drafting Tips

Posted in Continuous and Timely Disclosure, Uncategorized
Rene SorellSonia StruthersFraser BourneMason Gordon

On July 18, 2016, the Canadian Securities Administrators (CSA) published a summary of the results of their annual continuous disclosure (CD) review of reporting issuers for fiscal year 2016. See CSA Staff Notice 51-346 – Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2016 (Staff Notice).


The CSA annually conducts both “full reviews” and “issue-oriented reviews” to identify material deficiencies in reporting issuers’ CD records. This year, a total of 902 CD reviews were conducted (down from 1,058 in fiscal 2015), with full reviews comprising 31% of the total reviews and issue-oriented reviews comprising 69%.

Issue-oriented reviews are based on a specific accounting, legal or regulatory issue, an emerging issue, implementation of recent rules or on matters which the CSA believes may give rise to a heightened risk of investor harm. Issue-oriented reviews conducted in 2016 included:

  • Mining/Oil&Gas technical disclosure (33%);
  • Gender diversity (12%)[1];
  • Management’s Discussion and Analysis (MD&A) (9%);
  • Financial statements (8%);
  • Non-GAAP financial measures (6%);
  • Press Release/Material change report (5%); and
  • Other (including reviews of corporate governance, Management Information Circulars (MICs), material contracts, public complaints and other regulatory requirements) (27%).

The CSA classified the outcomes of both types of reviews into five categories: (i) referrals to enforcement/cease-traded/default list (8%), (ii) refiling (23%), (iii) prospective changes (31%), (iv) education and awareness (11%), and (v) no action required (27%).

The Staff Notice provides examples of common deficiencies and contrasts deficient disclosure with examples of better disclosure on select topics. Continue Reading

OSC Clarifies Regulation of Out of Canada Distributions

Posted in Industry News, OSC, Proposals, Requests for Comment
Fraser BourneRene Sorell

The Ontario Securities Commission (the “OSC”) is seeking comment on Proposed OSC Rule 72-503 – Distributions Outside of Canada and its related companion policy (the “Proposed Rule”), to eliminate longstanding uncertainty about how outside of Canada distributions of securities will be regulated.

Purpose of the Proposed Rule

A distribution of securities by an issuer to foreign investors may or may not fall under the jurisdictional scope of the Securities Act (Ontario) (the “Act”) depending on the connecting factors to Ontario (e.g. the issuer having an active trading market in Ontario or a head office in Ontario).

In an interpretation note published in 1983[1] (the “Interpretation Note”), the OSC stated that where reasonable steps are taken by the issuer, underwriter and other market participants in the context of an outbound distribution to ensure that such securities “come to rest” outside of Ontario, and there are no other circumstances that would call into question the integrity of Ontario capital markets, a prospectus is not required under the Act, nor is an exemption from the prospectus requirement necessary.[2]

It has proven difficult for market participants to know with certainty whether sufficient steps have been taken to ensure that the securities are not treated as a part of a distribution  to residents of Ontario.

The Proposed Rule creates explicit prospectus-filing exemptions in the context of outbound distributions. The OSC then partially recreates the uncertainty it sought to eliminate concerning the Act’s jurisdictional scope by stating that the exemptions are not determinative of whether Ontario securities law would otherwise apply. The Proposed Rule also retains the general framework established by the Interpretation Note for determining when the Ontario prospectus requirement applies to outbound distributions.

Proposed Prospectus Exemptions

The Proposed Rule creates four new prospectus exemptions. Compliance with the securities laws of the relevant foreign jurisdiction is a condition to the availability of each exemption. The proposed exemptions are as follows:

  1. Distributions under Public Offering Document in Foreign Jurisdictions: The Ontario prospectus requirement would not apply where (i) the issuer has filed a registration statement in accordance with the Securities Act of 1933 of the Unites States of America registering the securities in connection with the distribution, and the registration has become effective, or (ii) the issuer has filed a document similar to a final prospectus for which a receipt or similar acknowledgement of approval has been obtained in accordance with the securities laws of a “designated foreign jurisdiction” registering the securities in connection with the distribution or qualifying the securities for distribution. The designated jurisdictions are Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom.
  2. Concurrent Distribution under Final Prospectus in Ontario: The Ontario prospectus requirement would not apply where the issuer of the securities has filed with the OSC, and a receipt has been issued for, a final prospectus qualifying the concurrent distribution of such securities in Ontario. Since even foreign purchasers of Ontario prospectus-qualified securities may be entitled to certain rights and investor protections under the Act, any prospectus filed in such circumstances should clearly state whether or not it also qualifies the distribution of securities to investors outside of Canada.
  3. Distributions by Reporting Issuers: The Ontario prospectus requirement would not apply where the issuer of the securities is and has been a reporting issuer in a jurisdiction of Canada for the four months immediately preceding such distribution.
  4. Other Distributions: The Proposed Rule provides that the Ontario prospectus requirement would not apply even when an outbound distribution does not fall under one of the above categories, but that in such circumstances, unlike for the exemptions set out above, the first trade of such securities would be subject to resale restrictions except where the first trade is to a person or company outside of Canada, or where (A) the issuer has been a reporting issuer in a jurisdiction of Canada for the four months immediately preceding the trade, and (B) at least four months have elapsed from the distribution date.

The OSC notes that although nothing in the Proposed Rule prohibits or restricts the resale of the securities distributed under one of the first three exemptions listed above, it nevertheless expects the issuer, the underwriters and other participants in the offering to take reasonable steps to ensure that the securities come to rest outside of Canada and are not redistributed back into Canada in a manner that constitutes an indirect distribution in Ontario. This statement is somewhat surprising. Under the current regime, issuers can avoid the Ontario prospectus requirement by taking steps to ensure that securities are not redistributed back into Canada. It is unclear why such steps would still have to be taken when securities are distributed under one of the new prospectus exemptions and are not subject to resale restrictions.

Exemptions from the Registration Requirement

The proposed rule also sets out an exemption from the Ontario dealer and underwriter registration requirements for outbound distributions, subject to certain conditions.

Form of Report of Distributions Outside of Canada

An issuer that relies on one of the proposed prospectus exemptions (other than the Distribution under Public Offering Document in Foreign Jurisdictions exemption) would be required to file a new prescribed report of distribution outside of Canada on or before the tenth day after the distribution date. The new report would be required to be filed electronically through the OSC’s Electronic Filing Portal and requires certain limited information concerning the distribution, including information relating to the identity of the issuer, the type and number of securities distributed and the purchase price, the date of distribution and the name and address of any person acting as dealer or underwriter in connection with the distribution. The certification of the report may not be delegated to an agent or other individual preparing the report on behalf of the issuer.

This post-distribution filing would represent an additional obligation for issuers that use one of the new outside of Canada prospectus exemptions that does not exist under the current regime. However, the new report would require much less information compared to post-trade reports required for certain other prospectus exempt distributions in Canada (including distributions relying on the accredited investor exemption).

Comment Period

The OSC has requested comments on the Proposed Rule by September 28, 2016.

[1] Interpretation Note 1 Distributions of Securities Outside Ontario published in connection with the Notice of Repeal of OSC Policy 1.5 Distribution of Securities Outside of Ontario (March 25, 1983) 6 OSCB 226.

[2] Some other jurisdictions are more definitive in applying the prospectus requirement in similar circumstances. In Quebec, for example, Section 12 of the Securities Act (Quebec) provides that “every person intending to make, from Québec, a distribution of securities to persons established outside Québec shall prepare a prospectus and obtain a receipt from the Authority.” Section 12 also provides, however, that no prospectus will be required where the Authority agrees or does not object within 15 days after receiving certain prescribed information concerning the distribution.


The AMF Launches Whistleblower Program

Posted in AMF, Industry News
Trevor CourtisRene SorellSonia Struthers

On June 20, 2016, the Autorité des marchés financiers (the “AMF”), Quebec’s financial services regulatory authority, launched its Whistleblower Program. Individuals who have information about offences that have been committed contrary to the laws and regulations administered by the AMF, including the Securities Act, the Derivatives Act and others, may report such wrongdoing under the Whistleblower Program.

The major features of the program are:

  • Confidentiality – The AMF makes every effort to keep the whistleblower’s identity and the information they provide confidential;
  • No reprisal – An employer is prohibited from firing, demoting or otherwise adversely affecting the whistleblower’s employment;
  • Immunity – A civil suit cannot be brought against a whistleblower for the information they report; and
  • No rewards – The AMF will not provide financial rewards for information that leads to a conviction.

The AMF announced its decision not to offer financial rewards in February. The AMF compared the systems of the U.S. Securities and Exchange Commission and the Ontario Securities Commission, which offer financial rewards, and the systems of the U.K. Financial Conduct Authority and the Australian Securities and Investment Commission, which do not. The AMF concluded that it cannot be established with certainty that financial incentives generate higher quality reporting. The protection of confidentiality, according to the AMF, is the primary motivation for whistleblowers to report incidents.

More information regarding the Whistleblower Program can be found on the AMF’s website.

Les propositions des ACVM concernant les personnes inscrites ont des effets très importants sur les courtiers et les conseillers au Canada

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, Registrants, Requests for Comment
Cristian BlidariuAlexandra CocksMichael NicholasRenee ReicheltSean SadlerRene SorellSonia Struthers

Les Autorités canadiennes en valeurs mobilières (les ACVM) ont publié un important document de consultation dans lequel il est proposé de rehausser considérablement les obligations de tous les conseillers, courtiers et représentants, y compris les membres de l’OCRCVM et de l’ACFM (les personnes inscrites). Les commentaires sur ce document de consultation peuvent être présentés jusqu’au 26 août.

Continue Reading

Tomorrow, May 18, Registrants Will Receive the OSC’s 2016 Risk Assessment Questionnaire – What Will Your Firm’s Risk Rating Be?

Posted in Exempt Market Dealers, Industry News, Investment Funds, Mutual Funds, OSC, Portfolio Managers, Registrants
Cristian BlidariuMichael NicholasSean SadlerRene Sorell

For the first time since 2014, the Ontario Securities Commission (OSC) will send Ontario registrants a risk assessment questionnaire (RAQ) that must be completed by portfolio managers, investment fund managers, exempt market dealers, restricted portfolio managers and restricted dealers registered in Ontario. Registrants will receive the 2016 RAQ tomorrow, May 18.

The OSC uses data gathered through the RAQ to apply a risk ranking to firms. Firms with higher risk rankings are more likely to be targeted by the OSC for compliance reviews. As a result, it is important that the RAQ answers be considered carefully.

The 2016 RAQ will be similar to the 2014 version, but will also include questions intended to assess how registrants, issuers and portals are using newly developed capital-raising prospectus exemptions such as the crowdfunding exemption, offering memorandum exemption and the modernized prospectus-exempt rights offering regime. As we recently reported, the OSC is increasing oversight of market participants who rely on these newly expanded capital-raising exemptions in Ontario and the 2016 RAQ is a key element of this heightened regulatory scrutiny of the exempt market.

Registrants must complete and submit the RAQ online by June 29, 2016.

We invite you to contact a member of our Securities Regulation and Investment Products Group should you have any questions regarding the OSC’s 2016 Risk Assessment Questionnaire.

À compter d’aujourd’hui, le système d’alerte au Canada exige des informations plus détaillées en ce qui concerne l’objectif d’une acquisition

Posted in Amendments, Continuous and Timely Disclosure, Shareholder Activism
Cristian BlidariuPatrick BoucherLaure FouinRene SorellSonia Struthers

Des modifications importantes au régime de déclaration du système d’alerte canadien entrent aujourd’hui en vigueur (se reporter à notre article publié le 3 mars 2016 qui s’intitule Les règles du système d’alerte du Canada se resserrent en mai). Nous mettons ici l’accent sur les exigences nouvelles et plus rigoureuses liées à la description de l’objectif de l’acquisition.

Continue Reading

CSA Registrant Proposals Have Far-Reaching Effects on Dealers and Advisers in Canada

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, Registrants, Requests for Comment
Cristian BlidariuAlexandra CocksMichael NicholasRenee ReicheltSean SadlerRene SorellSonia Struthers

Recently, the Canadian Securities Administrators (CSA) released an important Consultation Paper that proposes to significantly increase the obligations of all advisers, dealers and representatives, including IIROC and MFDA members (Registrants). Comments on the Consultation Paper can be made until August 26.

The CSA is proposing two distinct categories of changes that, if adopted, will significantly impact the economics of existing Registrant business models and Registrant compliance costs:

1. Best Interest Standard: A “client best interest” standard against which all Registrant-client obligations would be interpreted.

2. “Targeted Reforms”: A comprehensive set of so-called “targeted reforms” will affect how the following key areas are addressed:

• Conflicts of interest
• Know you client procedures (KYC)
• Know your product procedures (KYP)
• Suitability
• Relationship disclosure
• Proficiency
• Business titles
• Use of professional designations
• Role of the ultimate designated person (UDP) and chief compliance officer (CCO)
• Statutory fiduciary duty when client grants Registrant discretionary authority.

The CSA sets out numerous consultation questions in respect of the Best Interest Standard and for each of the Targeted Reforms.

“Best Interest” Standard

The Consultation Paper is the latest in a series of CSA publications since 2012 which have studied the Registrant-client relationship and the possible introduction of a “best interest” standard for Registrants.

The Consultation Paper reveals that CSA jurisdictions are split on the wisdom of introducing a Best Interest Standard. British Columbia is opposed to the Best Interest Standard and is not even soliciting comments on it; Quebec, Alberta, Manitoba and Nova Scotia have strong reservations about it but are interested in receiving and reviewing the comments on the “Best Interest” Standard.

Only Ontario and New Brunswick are in favour and Saskatchewan is open to further consultations.

A regulatory Best Interest Standard would require that a Registrant:

  • deal fairly, honestly and in good faith with its clients and act in its clients’ best interests
  • adopt the standard of care of a prudent and unbiased firm or representative, acting reasonably
  • be guided by the following principles:
    • act in the best interest of the client
    • avoid or control conflicts of interest in a manner that prioritizes the client’s best interests
    • provide full, clear, meaningful and timely disclosure
    • interpret law and agreements with clients in a manner favourable to the client’s interest where reasonably conflicting interpretations arise
    • act with care.

Opponents of the Best Interest Standard believe it would create more legal uncertainty and investor confusion and may actually exacerbate the expectation gap between clients and Registrants because business models with some fundamental conflicts of interest would continue to be permitted to operate, even as investors would come to believe a true “best interest” standard is in place.

In general, an overarching best interest standard could also impact civil liability of Registrants as it relates to negligence claims. Registered dealers would be most affected by the Best Interest Standard. Investment fund managers and portfolio managers are already subject to fiduciary duties by statute or at common law.

The Targeted Reforms

The Targeted Reforms are presented in the Consultation Paper as a set of proposals separate from the Best Interest Standard. This decoupling is significant as it could allow the Targeted Reforms to advance and be adopted even if CSA members fail to ultimately agree on the more controversial Best Interest Standard.

While the CSA states that elements of the Targeted Reforms are simply meant as an explicit articulation of expectations that the CSA already has for compliance with the current regulatory regime, the Targeted Reforms would nonetheless greatly increase the obligations of Registrants in a number of areas:

  • Conflicts of interest. Registrants would be required to respond to all material conflicts of interest in a manner that prioritizes the interests of the client ahead of the interests of the firm and representative. If this is not possible, the Registrant must avoid the conflict by ceasing to provide the service or product, or ending the relationship with the client. Simply disclosing the conflict to clients and getting their consent would not necessarily be sufficient. Under the current regime, a Registrant must avoid a conflict altogether only when the conflict is prohibited by law or when no other “reasonable response” is available.
  • KYC and KYP. Both KYC and KYP requirements would be made explicit and enhanced. For KYC, registrants would be required to gather, and regularly update, more client-centered information regarding investment needs and objectives, financial circumstances and client risk profile. For KYP, firms that have a product list that includes both proprietary and non-proprietary products (or non-proprietary products only), would be required to conduct a market investigation and product comparison as to ensure the range of products offered is representative of a broad range of products suitable for their client base.
  • Suitability. Suitability obligations would be significantly enhanced. Registrants would be required to consider basic financial strategies which would be more likely to achieve the client’s investment needs and objectives than a transaction in securities. Registrants would also need to identify a basic asset allocation strategy for the client. A targeted rate of return needed to achieve client objectives would need to be identified and any mismatches between the target rate and the client’s risk profile would need to be resolved. Registrants would have to ensure that the purchase, sale, hold or exchange of a security (or the decision not to purchase, sell, hold or exchange a security) was both suitable and “most likely to achieve the client’s investment needs and objectives”. Under the current regime, suitability is primarily a “trade-based” obligation with no explicit requirement to conduct a suitability analysis for a recommendation or decision to hold or exchange securities.
  • Relationship disclosure. In addition to the prescribed information that Registrants must currently deliver to clients regarding the Registrant-client relationship, firms would also be required to disclose the actual nature of the client-Registrant relationship in easy-to-understand terms. New disclosure obligations at the time of account opening would also be imposed on Registrants with restricted registration categories, such as mutual fund dealers or exempt market dealers. Registrants would be required to disclose whether they offer proprietary products only, or a mix of proprietary and non-proprietary products and make related disclosures to clients.
  • Proficiency. Explicit and increased proficiency requirements for representatives would be introduced.
  • Business titles. All client-facing business titles for representatives will be prescribed.
  • Use of professional designations. Specific rules would be introduced on the permitted use of professional and educational designations.
  • UDP and CCO roles. The roles and obligations of the UDP and CCO would be further clarified by amendments to NI 31-103.
  • Statutory fiduciary duty for discretionary accounts. Registrants that manage the investment portfolio of a client through discretionary authority granted by the client would become subject to a new statutory fiduciary duty.

We invite you to contact a member of our Securities Regulation and Investment Products Group should you have any questions regarding how the Targeted Reforms or Best Interest Standard may affect your business.