On April 16, 2015, the Canadian Securities Administrators (CSA), except for the Ontario Securities Commission (OSC), published a notice and request for comments on proposed amendments to Multilateral Instrument 11-102 - Passport System.
The CSA's proposed amendments expand MI 11-102 to include two new areas: (1) applications to cease to be a reporting issuer; and (2) the issuance, revocation or variation of failure-to-file cease trade orders. If adopted, the proposed amendments would:
- facilitate multi-jurisdictional applications to cease to be a reporting issuer by allowing most reporting issuers who meet the criteria to file an application in only one jurisdiction; and
- streamline the issuance, revocation and variation of failure-to-file cease trade orders by giving effect to the cease trade order issued by one securities regulator in all jurisdictions where the issuer is a reporting issuer.
In particular, the CSA proposes making the following amendments to MI 11-102:
- Application to cease to be a reporting issuer: A reporting issuer would only need to apply to its principal regulator (or Ontario) to cease to be a reporting issuer in all jurisdictions where it has this status. Once the principal regulator grants the order to cease to be a reporting issuer, the principal regulator's order would automatically have the same effect in notified passport jurisdictions.
- Failure-to-file cease trade orders: Where a passport securities regulator (including Ontario) may impose a cease trade order, the order would automatically restrict any trade in the affected securities in other passport jurisdictions. Failure-to-file cease trade orders are made when a reporting issuer is in default of certain continuous disclosure requirements.
Under the current rules, reporting issuers seeking to withdraw their reporting issuer status or to revoke failure-to-file cease trade orders must do so in each applicable jurisdiction. The CSA, with the OSC's collaboration, also proposes a passport application process, similar to those for prospectus filings and exemptive relief, for issuers seeking to cease to be reporting issuers and for failure-to-file cease trade orders which would work in tandem with MI 11-102.
Background to the Passport System
The Passport System, adopted by all Canadian securities regulators except Ontario, enables persons or companies to deal with only one principal regulator for the purposes of filing a prospectus or obtaining automatic exemptions. The purpose of the Passport System is to give market participants a single window of access to the capital markets, creating a streamlined and pan-Canadian decision-making process.
Although not adopted in Ontario, Ontario market participants have access to this system since the OSC is recognized as a principal regulator for the above-mentioned approvals and exemptions under the current MI 11-102. However, market participants seeking reporting issuer status or other exemptive relief in Ontario must follow a dual prospectus or dual application process even if their principal regulator is in a jurisdiction that has adopted MI 11-102.
Further Comments Sought on Expanding Cease Trade Orders
Beyond seeking comments on the proposed amendments and the new policies, the CSA is also considering applying failure-to-file cease trade orders to jurisdictions where the issuer is not a reporting issuer. In light of this, it has invited comments about whether—and to what extent—trading in cease-traded securities occurs in jurisdictions where issuers are not reporting issuers. It has also invited comments about any concerns that may arise from imposing trading prohibitions in jurisdictions where the issuer is not a reporting issuer.
Time for Comment
The CSA has requested comments with respect to the amendments to the Passport System by June 15, 2015.