On January 23, 2014, the CSA published for a 90-day comment
period proposed amendments that would modify the credit ratings
required to distribute short-term debt, primarily commercial paper
("CP"). The proposed short-term debt prospectus exemption
("Short-term Debt Prospectus Exemption"), would remove
the split rating condition that currently requires CP's to have
a rating at or above the designated ratings thresholds, and if a
second rating is obtained, it could not be below any of the
same designated rating threshold. Instead, a "modified
split rating" would require that CP's not have any ratings
below a different set of designated rating
threshold. The Short-term Debt Prospectus Exemption are intended
remove the regulatory disincentive for some CP issuers to
obtain an additional credit rating;
provide consistent treatment of CP issuers with similar credit
maintain the current credit quality of CP distributed under the
Short-Term Debt Prospectus Exemption.
The CSA also proposes to modify its 2011 proposals regarding eligible securitized
products investors exemptions. The 2011 proposals represented
CSA's then regulatory response to the collapse of Canada's
non-bank sponsored asset-backed CP ("ABCP") market
triggered by the 2008 global financial crisis.
In respect of short-term securitized products, the CSA proposes
to amend NI 45-106 as follows:
The following prospectus exemptions would be unavailable for
the distribution of short-term securitized products:
the Short-Term Debt Prospectus Exemption;
the private issuer prospectus exemption;
the family, close friends and close business associates
the founder, control person and family exemption; and
the offering memorandum exemption.
A new "Short-Term Securitized Products Prospectus
Exemption" would be introduced.
Issuers who distribute securities under the Short-Term
Securitized Products Exemption would be subject to additional
initial offering and ongoing disclosure obligations.
The CSA also proposes to make certain consequential amendments
to National Instrument 25-101 Designated Rating
Organizations (the DRO Rule), and to Companion Policy 45-106
Prospectus and Registration Exemptions.
The CSA arrived at their present approach after receiving mostly
concerned feedback on their 2011 proposals citing, among others,
that it was unfair to group ABCP's with other less risky forms
of asset-backed securities. Further, the CSA came to the view that
systemic risk in the Canadian financial markets, as was apparent
during the 2008 financial crisis, has been mitigated for three
A large majority of Canadian securitized products are
government guaranteed. As a result, these products are not prone to
investor flight or fire sales that occurred in the mortgage-back
securitization sector in the U.S. during the 2008 crisis;
The current Canadian "private-label" securitization
sector is conservative and mostly sponsored by Canadian banks with
oversight by the Office of the Superintendent of Financial
The assets being securitized in the current Canadian market are
traditional, cash-flow generating assets such as credit cards, as
oppose to unconventional, synthetic and leveraged assets such as
sub-prime mortgages, which had mostly been sponsored by non-bank
entities not subject to prudent oversight. Post 2008 crisis, such
complex, high-risk ABCP's are no longer being issued in
Comment period regarding the above proposals is open until April
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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