On Aug. 25, 2015, the participating provinces and territory in the Cooperative Capital Markets Regulatory System achieved an important milestone towards implementation of the system by publishing a revised consultation draft of the uniform provincial and territorial capital markets act (now known as the Capital Markets Act), along with the drafts of the initial regulations proposed for adoption by the participating provinces and territory under the draft uniform act. These materials have been published for a 120-day public comment period.
This article is part of Gowlings' Guide to the Proposed Initial Regulations and related materials. In this segment of our guide, we discuss the proposed initial regulations on disclosure by issuers and insiders and on proxies. To view other sections of the guide, click here.
The Uniform Act
Part 7 of the draft uniform act (Disclosure and Proxies) sets out the disclosure obligations of reporting issuers and other prescribed issuers, as well as insider reporting requirements and requirements relating to the solicitation of proxies. Only the overarching requirements are included in the draft uniform act, with the detailed requirements set out in the regulations, which is consistent with the approach of most provincial and territorial securities acts.
National and Multilateral Instruments and National Policies
In order to maintain continuity and minimize disruption for market participants, the proposed initial regulations are derived principally from the existing "5-series" national and multilateral instruments and national policies(1) in their current forms as of March 2, 2015. Generally, the changes that have been proposed are those necessary:
- to fit the "5-series" as regulations under the draft uniform act;
- to eliminate differences in requirements across the participating provinces and territories; and
- to reflect the integration of the regulatory authorities in the participating provinces and territories into the system.
The proposed revisions are not intended to affect the application of the existing "5-series" in the non-participating jurisdictions.
If you are interested in understanding the types of technical drafting changes being made generally to the "5-series" and seeing some examples, see note (2) below.
(a) Issuers Quoted in the U.S. Over-the-Counter Markets
One area that will see a regulatory change in Ontario (to bring it into line with the other jurisdictions) relates to reporting requirements for issuers quoted in the U.S. over-the-counter markets. It is proposed that Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets and its related forms and companion policy be carried forward in all of the participating provinces and territories. As a result, an issuer with significant connections to a participating province or territory (including Ontario) may be deemed a reporting issuer and thereby subject to Canadian continuous disclosure and other obligations if the issuer trades in U.S. over-the-counter markets. For more information, see our segment on Issuers Quoted in the U.S. Over-the-Counter Markets.
(b) Women on Boards and in Senior Management and Director Term Limits
An area that will see a regulatory change in British Columbia relates to the representation of women on boards and in senior management and director term limits. It is proposed that the following corporate governance requirements, which were adopted by Ontario (and therefore apply to all TSX-listed issuers), New Brunswick and Saskatchewan (as well as by some of the non-participating jurisdictions) effective Dec. 31, 2014, be carried forward in all of the participating provinces and territories. As a result, issuers in a participating province or territory will need to:
- adopt a written policy relating to the identification and nomination of women directors;
- disclose details relating to that policy, including its implementation, progress made on achieving its objectives and measurement of its effectiveness;
- disclose how the level of representation of women is considered in the director nomination process and in making executive officer appointments;
- adopt targets regarding women on the board and in executive officer positions and disclose these targets and the progress made on achieving them; and
- disclose whether it has adopted term limits for the directors on its board or other mechanisms for board renewal and describe them.
(c) CMRA Regulation 51-501 Disclosure and Proxies
The participating provinces and territories have proposed one new regulation relating to disclosure and proxies that would apply only to these jurisdictions. Proposed CMRA Regulation 51-501 Disclosure and Proxies is derived from existing local rules of the participating provinces and territories, as well as provisions in their current securities acts that have not been included in the draft uniform act but which are proposed to be retained. The intent of this proposed regulation is to replace these local rules and provisions, as well as to provide guidance and impose requirements that address other requirements contemplated by the draft uniform act that cannot be easily added to the existing national or multilateral instruments.
There are two main parts to this proposed regulation: (i) Issuers Listed or Quoted on Certain Market Places; and (ii) Meeting Information and Voting Instructions. Below, we summarize some of the key aspects of these parts.
(i) Issuers Listed or Quoted on Certain Market Places
An area that will see a regulatory change in both British Columbia and Ontario (arising from a local rule in New Brunswick) relates to issuers listed or quoted on certain market places that have particular connections to a participating province or territory. These issuers will be required to file specified information with the new chief regulator. For more information, see our segment on Issuers Listed or Quoted on Certain Market Places.
(ii) Meeting Information and Voting Instructions
The proposed regulation carries forward the requirement on registrants and custodians to send meeting information received from an issuer to a beneficial owner and to act in accordance with voting instructions given by the beneficial owner. It also deals with the right of a chair to not conduct a vote by way of ballot if the form of proxy used at the meeting provides for a means by which a person whose proxy is solicited may specify how such person's securities are to be voted, subject of course to expected exceptions.
If you would like to discuss these regulations and how they will apply to your business, or if you wish to be added to our email distribution list for related publications, please contact Tal Cyngiser* or any of the following lawyers:
*Tal Cyngiser, an Associate in our Toronto office, was seconded to the Canadian Securities Transition Office (CSTO) for over a year, working extensively with the participating provinces and their securities commissions on the drafts of the initial regulations.
To view our full guide, click here.
(1) The "5-series" includes ten national instruments and their related forms and companion policies and two national policies:
NI 51-101 Standards of Disclosure for Oil and Gas Activities
NI 51-102 Continuous Disclosure Obligations
NI 52-107 Acceptable Accounting Principles and Auditing Standards
NI 52-108 Auditor Oversight
NI 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings
NI 52-110 Audit Committees
NI 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer
NI 55-102 System for Electronic Disclosure by Insiders (SEDI)
NI 55-104 Insider Reporting Requirements and Exemptions
NI 58-101 Disclosure of Corporate Governance Practices
NP 51-201 Disclosure Standards
NP 58-201 Corporate Governance Guidelines
(2) The types of technical drafting changes being made generally to the "5-series" are summarized below.
- New "false" carve-outs for the participating provinces and territories have been created where a term defined in an instrument has the same, or substantively the same, definition as in the draft uniform act and the participating provinces and territories want the draft uniform act definition to apply in their jurisdictions.
For example, a carve-out has been added to the definition of "form of proxy" in section 1.1 of National Instrument 51-102 Continuous Disclosure Obligations such that the definition of this term in section 2 of the draft uniform act would apply in the participating provinces and territories.
As a further example, section 7.1 of National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities provides that a reporting issuer must deliver additional information with respect to the content of a document filed upon request by the regulator. A carve-out has been added from this section as it is unnecessary in view of subsection 102(2) of the draft uniform act, which imposes similar requirements with respect to information to be furnished on request to the chief regulator.
- New carve-outs for the participating provinces and territories have been created where a requirement imposed in an instrument is different from the draft uniform act, and the participating provinces and territories want the draft uniform act requirement to apply in their jurisdictions.
For example, subsection 3.1(2) of National Instrument 51-102 requires a person to file any document they deliver to securityholders in English or French if they only filed the document in the other language. Section 183 of the draft uniform act contains a broader requirement for a person to file all linguistic versions of documents sent to securityholders or potential investors. A carve-out has been introduced in order that in the participating provinces and territories, section 183 of the draft uniform act will apply instead of the requirement in subsection 3.1(2) of National Instrument 51-102.
- Existing carve-outs have been deleted if they are not necessary to fit them under the draft uniform act.
For example, the carve-out in subsection 7.1(6) of National Instrument 51-102, which provides that in Ontario, a reporting issuer must advise the securities regulatory authority if it believes that a material change report should remain confidential, has been deleted. This carve-out replicates the requirement under subsection 75(4) of the Ontario Securities Act, which has not been carried forward into the draft uniform act.
Similarly, the reference to Ontario in paragraph (a) of the definition of "transfer report" in section 1.1 of National Instrument 55-102 System for Electronic Disclosure by Insiders (SEDI), which exists because the requirement to file such a report is under the Ontario Securities Act, has been deleted since the draft uniform act does not require the filing of transfer reports.
A further example relates to the area of insider reporting. National Instrument 55-104 Insider Reporting Requirements and Exemptions was adopted as part of an initiative to harmonize insider reporting across Canada. However, in Ontario, the main insider reporting requirements were retained in section 107 of the Ontario Securities Act. For this reason, Part 2 of National Instrument 55-104 clarified that sections 3.2 and 3.3 of National Instrument 55-104 do not apply in Ontario. However, in the participating provinces and territories (including Ontario), the insider reporting requirements in National Instrument 55-104 will apply, as section 107 of the Ontario Securities Act has not been carried forward into the draft uniform act. As a result, Part 2 of National Instrument 55-104 has been deleted.
- Existing carve-outs have been extended to all participating provinces and territories if the draft uniform act includes an identical or overlapping requirement.
For example, the carve-out for Ontario in the definition of the term "recognized exchange" in section 1.1 of National Instrument 51-102, which provides that in Ontario, a recognized exchange is an exchange recognized by the securities regulatory authority to carry on business as a stock exchange, has been extended to all of the participating provinces and territories as the term is defined in the draft uniform act.