On October 6, 2008 the Canadian Securities
Administrators (the CSA) published CSA Consultation Paper 11-405 entitled
"Securities Regulatory Proposals Stemming from the 2007
– 08 Credit Market Turmoil and its effect on the ABCP
Markets in Canada" (the Consultation Paper). The Consultation
Paper is divided into two parts, with the first part providing a
narrative overview of the background to the credit market turmoil
in the United States, its spread into Canada and its impact on the
non-bank sponsored portion of the asset-backed commercial paper
(ABCP) market in Canada. The second part of the paper sets out
proposals made under the Concept Paper to deal with the credit
market turmoil and related issues in Canada.
The Consultation Paper is the work of a working group or a
subcommittee of the CSA which was formed on December 20, 2007 to
consider securities regulatory issues stemming from the turmoil in
international credit markets that began in August 2007 (the
Committee). The Committee consists of representatives of the
securities regulatory authorities in British Columbia, Alberta,
Ontario and Quebec, and the Concept Paper states that the
recommendations contained in it have not been approved by any
securities regulatory authorities or the various provincial or
territorial governments in Canada.
The Consultation Paper makes a number of proposals to deal with
issues arising out of the credit market turmoil and invites
comments on these proposals on or before December 20, 2008. Among
the proposals included in the Consultation Paper are proposals to
implement a regulatory framework for "approved credit rating
organizations", which would require credit rating agencies to
comply with "comply or explain" provisions of the
IOSCO Code of Conduct Fundamentals for Credit Rating
Agencies, and proposals to amend the current short
term debt exemption (available under section 2.35 of National Instrument 45-106 – Prospectus
and Registration Exemptions) to make it
unavailable for distributions of asset-backed short term debt, as
well as to reduce reliance on credit rating agencies in Canadian
securities legislation. Other proposals include a separate policy
review to consider the appropriateness of the net financial asset
threshold of the "accredited investor" exemption, and the
"$150,000 minimum investment amount" exemption, for
prospectus exempt distributions. The Concept Paper also proposes
coordinating with IIROC
various regulatory initiatives focused on addressing the role of
intermediaries that are registrants in distributing asset backed
securities such as ABCP. Also proposed is a review of the terms
"related issuer" and "connected issuer" in
proposed National Instrument 31-103 – Registration
Requirements, to ensure these definitions
capture issuers of ABCP and similar products. It is also suggested
that the CSA should review whether the concentration restrictions
contained in National Instrument 81-102 – Mutual
Fundsfor money market funds are appropriate,
whether further restrictions on the types of investments a money
market fund can make are required, whether assets such as
asset-backed short-term debt are appropriate as eligible assets in
the definition of "cash-cover" and "qualified
securities" and whether short-term debt investments, including
ABCP with a specified credit rating, should be permitted to be
aggregated in a statement of investment portfolio.
Comments on these and other proposals discussed in the Concept
Paper are invited to be made in writing, again, by no later than
December 20, 2008.
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guide to the subject matter. Specialist advice should be sought
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