Canada: Proposed Amendments To The Passport System

Last Updated: April 29 2015
Article by Rina Jaswal

Amendments to Multilateral Instrument 11-102 Passport System

On April 16, 2015, the Canadian Securities Administrators (the "CSA"), except for the Ontario Securities Commission (the "OSC"), published for a 60 day comment period proposed amendments (the "Proposed Amendments") to Multilateral Instrument 11-102 Passport System ("MI 11-102") and Companion Policy 11-102CP Passport System ("CP 11-102"). The amendments expand the passport system to include applications to cease to be a reporting issuer and the issuance and revocation (including a variation) of failure-to-file cease trade orders.

Currently, an application to cease to be a reporting issuer is filed with and reviewed by each provincial or territorial securities regulator by following the coordinated review system provided in National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions. The amendments to MI 11-102 will generally allow an issuer to be able to deal only with its principal regulator to obtain an order to cease to be a reporting issuer in all Canadian jurisdictions where it is a reporting issuer.  

Currently, there is no formal process across Canadian jurisdictions for when other regulators will reciprocate an order first issued against the securities of a defaulting reporting issuer. Under the amendments to MI 11-102, the initial failure-to-file cease trade order issued willgenerally result in the same prohibition or restriction in other passport jurisdictions where the issuer is a reporting issuer. They will also enable a reporting issuer to generally deal only withthe regulator that issued the failure-to-file cease trade order to obtain a revocation or variation of this order that has the same result in multiple jurisdictions.

Although the OSC has not adopted MI 11-102 and will not be adopting the Proposed Amendments, it can be a principal regulator for the cease to be a reporting issuer application and the regulator that issues a failure-to-file cease trade order, thereby allowing the OSC's orders to have the same result in passport jurisdictions through the application of the amendments to MI 11 -102.

New Policies: National Policy 11-206 and National Policy 11-207

Additionally, the CSA, including the OSC, published two new policies for comment: (i) National Policy 11-206 Process for Cease to be a Reporting Issuer Applications ("NP 11-206"); and (ii) National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations under Passport ("NP 11-207"). The policies implement new processes for the applications for an order to cease to be a reporting issuer and applications for an order to revoke (including vary) a failure-to-file cease trade order in both the passport jurisdictions and Ontario. NP 11-207 also allows for a streamlined issuance of failure-to-file cease trade orders that have effect in passport jurisdictions and Ontario.

NP 11-206 would work in tandem with the amendments to MI 11-102 and provides for both passport and dual applications to obtain an order to cease to be a reporting issuer in all Canadian jurisdictions where an issuer has reporting issuer status.  Under NP 11-206, an issuer may only apply to cease to be a reporting issuer in all ofthe jurisdictions in which it has this status.  If NP 11-206 is adopted, the CSA would withdraw CSA Staff Notice 12-307 Applicationsfor a decision that an issuer is not a reporting issuer.

NP 11-207 would also work in tandem with the amendments to MI 11-102 and also provides for passport and dual failure-to-file cease trade orders.  NP 11-207's main objectives are twofold: (i) it provides guidance regarding how the CSA will generally respond to certain types of continuous disclosure defaults by a reporting issuer by issuing failure-to-file cease trade orders; and (ii) it sets out new processes under passport for the issuance and the full or partial revocation (including a variation) of a failure-to-file cease trade order that have the same result in more than one Canadian jurisdiction. It would apply to a reporting issuer and, where the context permits, to a securityholder or other party seeking a revocation order.

Consequential Amendments

As a result of the above changes, the CSA is proposing changes to CP 11-102 to reflect the amendments made to MI 11-102.  In addition, the CSA is proposing to withdraw (i) National Policy 12-202 Revocation of a Compliance-Related Cease Trade Order, which is to be replaced by National Policy 12-202 Revocations of Non-Passport Cease Trade Orders ("Replacement NP 12-202"); and (ii) National Policy 12-203 Cease Trade Orders for Continuous Disclosure Defaults,which is to be replaced by National Policy 12-203 Management Cease Trade Orders ("Replacement NP 12-203").

These proposed replacement policies reflect that the processes concerning the issuance and the full or partial revocation (including variation) of failure-to-file cease trade orders for specified defaults would be moved to NP 11-207. Replacement NP 12-203 would continue to provide guidance on, as well as set out the processes for, the issuance of management cease trade orders. Replacement NP 12-202 would continue to set out the processes surrounding full or partial revocations (including variations) of all categories of continuous disclosure compliance-related cease trade orders, other than those failure-to-file cease trade orders that would be dealt with under passport.

For more information, please refer to the CSA Notice and Request for Comment Proposed Amendments to Multilateral Instrument 11-102 Passport System at https://www.bcsc.bc.ca/Securities_Law/Policies/Policy1/PDF/CSA_Notice__April_16__2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Rina Jaswal
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