In its May 22, 2009 Notice (Notice), the Ontario Securities Commission published for comment proposed changes (Proposed Modifications) to proposed amendments to National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106), National Instrument 45-102 Resale of Securities (NI 45-102) and OSC Rule 45-501 Ontario Prospectus and Registration Exemptions (OSC Rule 45-501) that were originally published for comment on February 29, 2008 (Proposed Rule Amendments). The Proposed Rule Amendments, in turn, are related to proposed changes to National Instrument 31-103 Registration Requirements (NI 31-103) and to the registration reform initiative of the Canadian Securities Administrators (CSA), first published on February 23, 2007. Following a comment period, NI 31-103 was republished on July 17, 2009 and will come into force on September 28, 2009. We are also reporting on changed NI 31-103 in this issue of the Business Law Quarterly.
The Proposed Rule Amendments affect prospectus and registration exemptions, and resale provisions for securities distributed under the prospectus exemptions, while the Proposed Modifications address the application in Ontario of certain of those provisions.
Ontario Budget Bill 162
The Notice was published as a result of the Ontario budget bill, the Budget Measures Act, 2009, (Bill 162) that was introduced on March 26, 2009. Bill 162 includes amendments to the Securities Act (Ontario) (OSA), found in Schedule 26 to Bill 162 (Proposed OSA Amendments). Schedule 26 received Royal Assent on June 5, 2009 but most of its provisions will come into force by proclamation at a later date. The Proposed OSA Amendments amend statutory provisions for registration requirements for dealers, advisors and others, for exemptions from the registration requirements and from the prospectus requirements, and for the resale of securities previously distributed under an exemption from the prospectus requirement. A consultative draft of the proposed amendments to the registration requirements and registration exemptions (Consultative Draft) was published by the Ontario Ministry of Finance on April 24, 2008. The Proposed OSA Amendments will require amendments to NI 31-103 in order to reflect the fact that the Ontario government proposes to maintain in the OSA, rather than in NI 31-103, certain of the registration requirements, and certain of the registration exemptions.
Ontario — Stage 1 OSA Amendments
The Proposed Modifications published by the OSC with its Notice relate only to certain of the Proposed OSA Amendments, namely, the Stage 1 OSA Prospectus Exemption Amendments, such that prospectus exemptions for which there is a corresponding registration exemption in the OSA, rather than in a rule, will be maintained in the OSA and not in a rule. The OSC notes that it is intended that the Proposed Modifications will come into effect when the changed NI 31-303 becomes effective.
Ontario — Stage 2 OSA Amendments
The OSC has advised that if certain additional second stage Proposed OSA Amendments in Bill 162 come into force at a date later than the date when the changed NI 31-103 and the Stage 1 OSA Prospectus Exemption Amendments come into force, further modifications will be required to NI 45-106 and OSC Rule 45-501. The Stage 2 OSA Prospectus Exemption Amendments would maintain in the OSA, rather than in a rule, an additional limited number of prospectus exemptions including the "accredited investor" exemption, the "private issuer" exemption, and the "government incentive security" exemption. These amendments to the prospectus exemption provisions were not included in the Consultative Draft. The language of these statutory prospectus exemptions in Bill 162 does not faithfully track the corresponding language in NI 45-106.
The Unique Ontario Approach
Bill 162 reflects an approach by the Ontario government that is similar to the approach it took in connection with changes adopted by the CSA to the takeover bid and issuer bid rules, which came into force on February 1, 2008. These rules were created so that there would be a harmonized set of rules applicable in all Canadian jurisdictions. At that time, Ontario elected to keep certain takeover bid and issuer bid provisions in the OSA while all other Canadian jurisdictions moved them to the rules. As a result, and as reported by us earlier, the takeover bid and issuer bid rules are now found in Multilateral Instrument 62-104 Takeover Bids and Issuer Bids for jurisdictions other than Ontario and in Part XX of the OSA and OSC Rule 62-504 Takeover Bids and Issuer Bids for Ontario. In that case, Ontario used its March 2007 budget bill to introduce the amendments to the OSA.
In the case of the rules for prospectus and registration exemptions, Ontario earlier adopted both NI 45-106 and OSC Rule 45-501, so it has an instrument, apart from the OSA, in which to embed the Ontario-only rules that may flow from Bill 162.
Other Changes to NI 45-106
In an initiative unrelated to Bill 162, the CSA announced on July 17, 2009, following a comment period, that it has approved amendments and a restatement of NI 45-106 and amendments to National Instrument 45-102 Resale of Securities (NI 45 102) and their related Forms and Companion Policies and that these restated and amended instruments and policies are expected to come into effect on September 28, 2009, being the same date on which the changed NI 31-103 is expected to come into force.
The restated NI 45-106 reflects substantive changes designed to improve its effectiveness, including:
clarification of certain provisions of the NI 45-106 and its companion policy; changes that reflect policy decisions the CSA has made in the course of granting exemptive relief; provision of additional guidance to market participants on the applicability of the exemptions contained in NI 45-106; and harmonization of exemptions previously found in local instruments. In addition, NI 45-106 has been restructured to support the implementation of the changed NI 31 -103 by setting out the registration exemptions in separate parts, with the part containing the registration exemptions to be phased out six months after the coming into force of the changed NI 31-103.
The amendments to NI 45-102 and its companion policy are designed to:
- clarify certain of their provisions; and
- update the legending requirements where an electronic book-entry system is used, or where the purchasers of securities do not receive a paper certificate from the issuer.