The comment period on the recently published revised consultation draft of the uniform provincial and territorial Capital Markets Act (CMA) and draft initial regulations under the CMA (Initial Regulations and, together with the CMA, the Consultation Drafts) is open until December 23, 2015.
The participating jurisdictions (CCMRS Jurisdictions) of Ontario, British Columbia, New Brunswick, Saskatchewan, Prince Edward Island and Yukon published the revised consultation draft CMA and Consultation Drafts under the proposed Cooperative Capital Markets Regulatory System (Cooperative System) on August 25, 2015. The Consultation Drafts have been designed to provide for a smooth transition from the current regulation of prospectus offerings and continuous disclosure; however, some aspects of the proposed governing regime have not yet been determined.
Given the scope of the Consultation Drafts, Blakes is publishing a series of bulletins, which can be accessed here?. Also see our November 2014 Blakes Bulletin: New Proposed Provincial Capital Markets Legislation: What it Means for Registrants and Other Market Participants.
As anticipated, the draft Initial Regulations are proposed to rely primarily on the existing system of national and multilateral instruments, with each CCMRS Jurisdiction adopting a revised version of each of the instruments that are proposed to be taken forward under the new system. Some revisions eliminate existing carve-outs from the current national instruments while others represent the adoption in all CCMRS Jurisdictions of regulatory approaches that formerly only applied in one or two of them.
BROAD MARKET PARTICIPANTS SCOPE MAINTAINED
While the expanded scope of the “market participant” definition continues, the CCMRS Jurisdictions said in their backgrounder that they propose to add a provision to the Initial Regulations so that certain record-keeping requirements for market participants would not apply to: control persons of a reporting issuer; a person (other than a reporting issuer) distributing securities in reliance on a prospectus exemption, along with its directors, officers, control persons or promoters; a person providing record-keeping services to a registrant; or a general partner of any of the above persons. However, the business and conduct review, investigation and production requirements would apply to all market participants.
REGISTRATION APPLIES TO DERIVATIVES AS WELL
The registration requirements in the CMA will apply to both securities and derivatives. The term “securities” will be interpreted to include all derivatives, which will include both over-the-counter (OTC) derivatives and exchange contracts. Certain registration provisions and exemptions that currently apply specifically to exchange contracts only in certain jurisdictions would be expanded to all CCMRS Jurisdictions. It is expected that the Commodity Futures Act (Ontario) would be repealed upon the CMA coming into force.
INTERNATIONAL DEALER, ADVISER EXEMPTIONS MAINTAINED
Existing international dealer and international adviser exemptions would be substantially continued, although an agent for service would only need to be designated in one of the CCMRS Jurisdictions.
ONTARIO’S FINANCIAL INSTITUTION REGISTRATION EXEMPTIONS ELIMINATED
Ontario currently exempts certain financial institutions from registration as either a dealer, underwriter, adviser or investment fund manager, including banks listed in Schedule I, II or III to the Bank Act (Canada), co-operative credit associations or certain co-operative credit societies, loan corporations, trust companies, insurance companies, credit unions, caisse populaires or the Business Development Bank of Canada. That exemption will not be carried forward under the CMA. The commentary says that “financial institutions will nonetheless be able to avail themselves of a number of registration exemptions contained in the initial regulations. In addition, registrants and other market participants may apply for exemptive relief.”
For firms applying to become a dealer or adviser, all new applicants would be required to file along with their application their business plan, policies and procedures manual, and client agreements, including investment policy statements and investment management agreements. This was not previously a requirement in Ontario.
The Initial Regulation would require registered dealers to disclose prescribed information when it intends, as principal, to effect a trade in a security with anyone who is not a registered dealer, if it is making any statement in writing to the person about the security. The CMA provides for a right of rescission if a registered dealer fails to disclose when it intends to or does act as principal in respect of a purchase or sale of a security, contrary to the Initial Regulation.
Certain existing British Columbia requirements for conditions of registration on investment dealers that trade in certain securities of OTC issuers would be extended to apply to all CCMRS Jurisdictions. The OTC conditions of registration include:
- Monitoring, record-keeping and reporting requirements
- Determination of beneficial ownership of securities of OTC issuers prior to selling
- Designation of a senior employee of the investment dealer responsible for compliance with the OTC conditions of registration
- Conditions relating to acceptance of physical deposits of securities of OTC issuers
An exemption from the OTC conditions is available for an investment dealer that does not, except for isolated trades, trade in securities of OTC issuers, subject to certain filings.