Through our annual Securities Year in Review publication we seek to highlight key changes in the capital markets sector, particularly with respect to significant changes in securities laws.
In this respect, 2015 was a notable year for capital markets in Canada with important developments in several areas, including a continuing march towards a national securities regulator, numerous reforms to the exempt market system and notable changes to public disclosure requirements. Although most of the amendments were evolutionary rather than revolutionary, they are nonetheless significant for issuers and other stakeholders and hold promise for certain landmark changes in the future.
As we move into 2016, we continue to regularly monitor securities laws developments. Updates on issues relating to capital markets and corporate law are routinely published by McMillan lawyers on our website.
Move Towards a National Securities Regulator
2015 was marked by a number of noteworthy developments in Canadian securities laws, including a continued push forward by a number of the provinces and the federal government to create a common securities regulatory regime and a uniform Capital Markets Act (CMA). The past year saw various revisions to the draft CMA, including amendments to the regulatory and criminal enforcement provisions, significant proposed amendments to the Canadian takeover bid regime, revisions to the provisions of the CMA pertaining to civil liability for insider trading, and changes to the draft derivatives regulations.
Reforms to Exempt Market System
The past year also saw a number of noteworthy revisions to the exempt market system in Canada, including the introduction of a new existing security holder exemption and a revised rights offering regime designed to streamline and facilitate the rights offering process. Other developments include a series of amendments to the exemptions available to accredited investors and to the minimum amount investment prospectus exemption, as well as changes in Ontario intended to harmonize the exemptions relating to offering memorandums and family, friends and business associates with those of other jurisdictions.
Changes to Disclosure Requirements
Significant changes were announced to disclosure and record keeping requirements with the aim of streamlining disclosures rules for venture issuers as well as improving accountability and transparency in the extractive sector. For venture issuers, changes were made to the disclosure requirements relating to executive compensation, business acquisition reports, and prospectuses. For issuers in the extractive sector, the Extractive Sector Transparency Measures Act came into force. Changes were also made to the TSX Manual to give security holders a vote before their securities were voluntarily delisted.
We also witnessed the introduction of certain proposed legislative changes to disclosure requirements, including the CSA's proposal for a single, harmonized exempt distribution reporting form for all provinces, as well proposed changes to National Instrument 41-101 General Prospectus Requirements pertaining to the disclosure requirements for mutual funds and exchange-traded mutual funds.
Rules for Foreign and Interlisted Issuers
A number of revisions were also made to securities laws applicable to foreign and interlisted issuers. The TSX Company Manual was amended to expand the exemptions available to TSX interlisted issuers, and blanket orders issued in certain Canadian provinces resulted in enhanced relief for certain issuers in connection with obligations under Multilateral Instrument 51-105 Issuers Quoted on the U.S. Over-the-Counter Markets. Additional relief for foreign issuers followed in the form of amendments that reduce the disclosure burden on foreign issuers privately placing securities in Canada by reducing the type of disclosure typically required in a Canadian "wrapper" to an offering document.
The Arrival of Crowdfunding in Canada
Another notable amendment included the creation of a crowdfunding prospectus exemption adopted by certain provinces in the form of Multilateral Instrument 45-108 – Crowdfunding. This exemption provides a legal framework for crowdfunding as a means for early-stage companies to raise capital by balancing the need for fewer disclosure requirements with a continuing commitment to investor protection.
TSX Company Manual – Requirements for Non-Corporate Issues
On September 17, 2015, the TSX amended the TSX Company Manual (the Manual) to codify existing practices of the TSX with respect to listing and other requirements for certain types of non-corporate issuers, namely closed-end funds, exchange traded products (ETPs) and structured products. It also introduced certain which are generally consistent with current Ontario Securities Act requirements for these types of issuers.
Amendments to OTC Derivative Trade Reporting Rules
In late 2015, the Ontario Securities Commission published proposed amendments relating to the regulation of the over-the-counter (OTC) derivatives market in Ontario, Manitoba and Quebec (the MOQ Authorities). In January of 2016, the provinces of Alberta, British Columbia, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, and Saskatchewan adopted their own rules relating to the regulation of the OTC derivatives market which are substantively harmonized with the OTC derivative trade reporting rules adopted by the MOQ Authorities.
Judicial and Administrative Decisions
The past year witnessed several noteworthy decisions from the courts and securities regulators dealing with a number of interesting subject matters relevant to regulation of the capital markets - from the scope of the public interest authority of securities regulators to the fairness of a plan of arrangement. These notable developments should be of interest to capital markets participants and are discussed below.
Noteworthy Proposed Amendments
In addition to the above noted proposed amendments to disclosure requirements, the past year also witnessed a number of noteworthy proposed amendments, including a proposed Whistleblower Policy by the Ontario Securities Commission (OSC). The Whistleblower Policy is designed to encourage reporting to the OSC of misconduct or possible breaches of Ontario securities laws and would if implemented be the first of its kind among Canadian securities regulators. In early 2015, the CSA also published an update on the proposal for a comprehensive regulatory framework for publicly offered alternative investment funds.
Guidance from Regulatory Authorities
In the past year, several securities regulatory authorities provided useful guidance relating to various matters of importance to capital markets participants, including the following:
CSA: Corporate Governance Disclosure
The Canadian Securities Administrators (CSA) released a report discussing its review of compliance with the new corporate governance disclosure rules introduced in October 2014, and provided further guidance for issuers on improving compliance.
OSC: Related Party Transaction Reporting
In February 2015, the OSC released a report based on a review of related party transaction disclosure in which it identified disclosure issues and provided guidance to issuers preparing required related party disclosure. While financial and MD&A disclosure met most key disclosure requirements, a number of deficiencies were identified.
IIROC: Underwriting Due Diligence
In December 2014, the Investment Industry Regulatory Organization of Canada (IIROC) issued its final guidance regarding due diligence conducted by underwriters on public offerings of securities in Canada. The proposed guidance was originally published by IIROC in March 2014 and was amended to address a number of comments. The final guidance promotes consistency and enhanced standards by setting out the elements of the underwriting due diligence process as well as the types of policies and procedures dealer members need to follow.
CSA: Proxy Voting
The CSA have been engaged in a review of the Canadian voting infrastructure since August 2013. In January of 2015, the CSA issued a report that discusses the progress made to date in their review and outlines next steps. The progress report confirms that the CSA believes the current system to be fragmented and requiring modernization and improvement.
IIROC: Priorities for Upcoming year
In April 2015, IIROC published a Notice setting out its key priorities for the upcoming year, including a list of strategic goals and a comprehensive list of activities and projects it plans to undertake. The Notice is a result of IIROC's efforts to adjust its strategic objectives and priorities in order to better fulfill its regulatory mandate.
ISS: Proxy Voting Guidelines
Institutional Shareholder Services (ISS) released its 2016 Proxy Voting Guidelines Updates for shareholder meetings held in 2016. The Guidelines are a product of ISS' 2015 global policy survey, which solicited the views of investors, companies, and other interested parties with respect to corporate governance issues. Among the topics considered are director overboarding, proxy access, compensation programs and compensation disclosure at externally-managed issuers.
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.
© McMillan LLP 2016