On August 25, 2015, a 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) for the proposed Cooperative Capital Markets Regulatory System (Cooperative System) were published for comment. The Consultation Drafts are open for comment until December 23, 2015.
The CMA is intended to replace existing provincial and territorial securities legislation in the participating provinces and territories (Ontario, British Columbia, New Brunswick, Saskatchewan, Prince Edward Island and Yukon). The initial consultation draft of the CMA was published for comment in September 2014 along with the initial consultation draft of the complementary federal Capital Markets Stability Act (CMSA). Blakes published a series of Bulletins regarding various aspects of the Cooperative System and subsequently published a series of Bulletins summarizing comments received on the CMA and CMSA (please see the various Bulletins posted on our website). A revised draft federal CMSA has not yet been released.
Given the scope of the Consultation Drafts, Blakes is publishing a series of Bulletins regarding various aspects of the Consultation Drafts. This Bulletin provides an overview of the Consultation Drafts and developments with respect to the structure and inter-provincial cooperation framework of the Cooperative System.
PLATFORM APPROACH MAINTAINED
Specific changes to the CMA from the initial draft CMA will be addressed in our series of Bulletins. However, in general, the revised CMA does not significantly depart from the approach taken in the initial draft CMA.
Several commenters on the initial draft CMA suggested that certain fundamental provisions of capital markets law, such as the 20 per cent take-over bid threshold and the two-day cooling-off period for a prospectus offering, should be set forth in the legislation (as they currently are in the Ontario Securities Act), rather than in the regulations. However, the commentary published with the revised CMA commentary confirms that the platform approach, which involves setting out certain fundamental provisions of capital markets law in the legislation while leaving most of the requirements and exceptions to be addressed in regulations, will be retained.
INTERFACE WITH NON-PARTICIPATING JURISDICTIONS UNRESOLVED
One common theme of comments on the initial draft CMA was the importance of the “interface” between the Cooperative System Authority (Authority), on the one hand, and the non-participating provinces and territories (Alberta, Quebec, Manitoba, Nova Scotia, Newfoundland and Labrador, Nunavut and Northwest Territories), on the other. This issue is important to market participants such as reporting issuers and securities dealers. If the new Authority does not substantially rely on determinations, such as prospectus receipts, issued by non-participating jurisdictions for companies based in these jurisdictions (and vice versa), more, not less, fragmentation may result in the administration and enforcement of securities laws across the country. The memorandum of agreement among the participating jurisdictions states that the Authority will use its best efforts to negotiate and implement an interface mechanism with each non-participating jurisdiction such that the Cooperative System is effectively of national application. The commentary issued with the Initial Regulations states that it is expected that an interface will be agreed upon with non-participating jurisdictions. The Initial Regulations commentary does not indicate whether the interface is expected to be analogous to the current passport system, based on a system of mutual reliance or otherwise.
MARKET PARTICIPANTS FEES
Another important aspect of the Cooperative System to market participants is the fees they will be required to pay to the Authority. The memorandum of agreement provides that the Cooperative System will be self-funded by market participants such as issuers and dealers. The CMA commentary indicates that the fee regulation is under development.
TRANSITIONAL PROVISIONS DON’T ADDRESS MARKET PARTICIPANTS
The CMA provisions that will address the transition to the Cooperative System from the current regulatory regime have not been included in the revised CMA. The CMA commentary indicates that those provisions will be highly dependent on the overall approach to implementing the Cooperative System, which has not yet been determined by the participating jurisdictions. The CMA commentary indicates that the transitional provisions are anticipated to provide, among other things, that decisions of a predecessor regulator will be deemed to be decisions of Authority and obligations incurred to a predecessor regulator will continue as obligations under the Cooperative System.
The Consultation Drafts and CMA commentary do not address the issue of how reporting issuers or securities registrants under one or more of the participating jurisdictions will become reporting issuers or registrants under the Cooperative System or whether existing reporting issuers or registrants in fewer than all of the participating jurisdictions will become reporting issuers in all participating jurisdictions.
As noted, the revised CMA takes a “platform” approach to regulation. Most of the requirements of capital markets laws and exemptions therefrom in the Cooperative System are addressed in the Initial Regulations, which have been adapted primarily from existing regulations in the participating jurisdictions. The changes from existing regulations will be addressed in our series of Bulletins to be published. In general, the Initial Regulations consist of: regulations adapted from current national and multilateral instruments, forms and policies revised to reflect the CMA and the integration of the participating jurisdictions; and new regulations (CMRA Regulations) designed to replace the local regulations, rules, blanket orders and other local regulatory instruments in participating jurisdictions (Local Rules). The Initial Regulations commentary indicates that all Local Rules were reviewed and considered for inclusion, and the CMRA Regulations contain all of the Local Rules that are proposed to be carried forward and applicable in all participating jurisdictions.
PROSPECTUS EXEMPTIONS, LOCAL POLICIES NOT YET ADDRESSED
Although the Initial Regulations were quite comprehensive, a few matters have not yet been addressed. Given existing differences among participating jurisdictions and regulatory initiatives under consideration, the publication of a harmonized set of prospectus exemption regulations has been delayed. The Initial Regulations commentary indicates that the harmonized regulations will include:
- An exemption allowing issuers on specified exchanges to raise capital from existing securityholders
- A family, friends and business associates exemption
- Two exemptions permitting securities-based crowdfunding
- An offering memorandum exemption
In addition, it has not been determined which local policies, interpretation notes and staff notices will apply in the participating jurisdictions.
The comment period for the revised CMA and Initial Regulations is open until December 23, 2015. The Initial Regulations commentary states that the draft fees regulation and prospectus exemptions regulation will be published in the coming months.
Revised drafts of the federal CMSA and the implementing legislation setting out the structure, responsibilities and powers of the Authority are being developed by the participating jurisdictions. However, no timeline for publication and comment has been provided. The Initial Regulations commentary indicates that regulations under the federal CMSA, which are expected to address data collection and systemic risk mitigation, are not expected to be proposed before the Cooperative System becomes operational.
The memorandum of agreement states that the participating jurisdictions expect the Cooperative System to be operational by the fall of 2016. However, given the scope of the Initial Regulations just published for comment and the fact that important regulations and legislation have not yet been published for comment, the expected timeline, which has been extended a few times already, appears to continue to be ambitious.