Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications -offering of corporate strip bonds; exemptiongranted from the eligibility requirements of National Instrument44-102 Shelf Distributions and National Instrument 44-101 ShortForm Prospectus Distributions to permit the filing of a shelfprospectus and prospectus supplements (the "Prospectus")qualifying for distribution strip residuals, strip coupons andstrip packages (the "Strip Securities") to be derivedfrom debt obligations ("Underlying Obligations") ofCanadian corporations and trusts; exemption also granted fromthe requirements that the Prospectus contain a certificate ofthe issuer and that the Prospectus incorporate by referencedocuments of the Underlying Issuer.

The exemptions are subject to the followingconditions (i) all of the Underlying Obligations from whichthe Strip Securities are derived were qualified under prospectusesfiled in British Columbia, Alberta, Ontario, Quebec, at leastfour months have passed from the sale of the Underlying Obligationsand the distribution of the Underlying Obligations is complete;(ii) when the Strip Securities are sold the Underlying Issueris eligible to file a short form prospectus because it meetsthe qualification criteria or because it has received an exemptionfrom those criteria; (iii) a base shelf prospectus for the StripSecurities is not effective for more than 25 months; (iv) theProspectus complies with all the requirements of NI 44-101 andNI 44-102 except those from which an exemption is granted bythe decision document or granted by the regulators as evidencedby the receipt for the Prospectus; (v) the Filer issues a pressrelease and files a material change report for each materialchange which affects the Strip Securities but not an UnderlyingIssuer and any change in CDS's Debt Clearing Procedures whichmay have a significant effect on a holder of Strip Securities;and (vi) the Filer files the Prospectus ,the required materialchanges reports and all other documents related thereto on SEDARunder a SEDAR profile for the Strip Securities and pays allSEDAR filing fees.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.,subsection 58(1).

Applicable National Instruments

National Instrument 44-101 Short Form ProspectusDistributions.

National Instrument 44- 102 Shelf Distributions.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA,

ONTARIO, QUÉBEC, NEWBRUNSWICK, NOVA SCOTIA,

PRINCE EDWARD ISLAND, NEWFOUNDLANDAND LABRADOR,

YUKON TERRITORY, NORTHWESTTERRITORIES AND NUNAVUT

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CIBC WORLD MARKETS INC.

AND

IN THE MATTER OF

THE STRIP COUPONS,

STRIP RESIDUALS AND ADJUSTEDRATE SECURITIES

PROGRAMME OF CIBC WORLD MARKETSINC.

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundlandand Labrador, Yukon Territory, Northwest Territories and Nunavut(collectively, the "Jurisdictions") has received anapplication from CIBC World Markets Inc. (the "Filer")for a decision pursuant to the securities legislation of theJurisdictions (the "Legislation") that the followingrequirements shall not apply in respect of sales of separatecomponents of interest, principal or combined principal andinterest components derived by the Filer from one or more UnderlyingObligations (as defined herein) purchased by the Filer on thesecondary market,

(a) Section 2.1 of National Instrument 44-102Shelf Distributions ("NI 44-102") and Section2.1 of National Instrument 44-101 Short Form ProspectusDistributions ("NI 44-101") so that a preliminaryshort form prospectus which is a preliminary base shelfprospectus and a short form prospectus which is a base shelfprospectus together with the appropriate prospectus supplements(collectively, the "Prospectus") can be filedto offer the Strip Securities (as defined herein) in theJurisdictions;

(b) the requirements of the Legislationthat the Prospectus contain a certificate of an issuer;and

(c) the requirements of the Legislationthat the Prospectus incorporate by reference documents ofan Underlying Issuer.

AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;

AND WHEREAS, unless otherwise defined,the terms herein have the meanings set out in National Instrument14-101 Definitions or in Quebec Commission Notice 14-101;

AND WHEREAS the Filer has representedto the Decision Makers that:

1. The Filer proposes to establish a stripbond product programme (the "Programme") to be offeredby shelf prospectus;

2. The Programme will be established by purchasing,on the secondary market, publicly issued debt obligations(the "Underlying Obligations") of Canadian corporateand/or trust issuers ("Underlying Issuers"), whichUnderlying Obligations will, at the time of the closing ofan offering of the related strip securities, carry an "ApprovedRating" (as such term is defined in NI 44-101), and derivingseparate components therefrom, being:

(a) separate components of principal ("StripResiduals") and interest ("Strip Coupons");and/or

(b) packages of securities ("StripPackages") including packages of:

(i) Strip Coupons; and

(ii) securities ("Adjusted Rate Securities")comprised of an entitlement to receive all or a portionof the principal amount of, and all or a portion of theinterest payable, under the Underlying Obligations,

the Strip Residuals, Strip Coupons and StripPackages (including packages of Strip Coupons and AdjustedRate Securities) are each referred to as "Strip Securities";

3. The relevant Underlying Issuer will, tothe best of the Filer's knowledge as of the date of the closingof an offering of the Strip Securities (the "OfferingDate") be eligible to file a short form prospectus underNI 44-101 whether or not such eligibility results from thespecific qualification criteria of NI 44-101 or from the grantingof an exemption from those criteria;

4. The Underlying Obligations will have beendistributed under a prospectus for which a receipt was grantedby the regulators in British Columbia, Alberta, Ontario, andQuebec, at least four months will have passed from the dateof closing of the original issue of the relevant class orseries of Underlying Obligations and the distribution of theUnderlying Obligations will have been completed;

5. A single short form base shelf prospectuswill be filed in relation to the distribution of Strip Securities,with each separate series of Strip Securities being offeredunder a prospectus supplement;

6. The Filer will not enter into any agreementor other arrangements with the Underlying Issuers in connectionwith acquiring Underlying Obligations for the purpose of distributingthe Strip Securities or in relation to any such distribution;

7. The Prospectus will refer purchasers ofthe Strip Securities to the System for Electronic DocumentAnalysis and Retrieval ("SEDAR") website (currentlylocated at www.sedar.com) where they can obtain the continuousdisclosure materials of the Underlying Issuer;

8. The Filer may, from time to time, formand manage a selling group consisting of other registeredsecurities dealers to solicit purchases of and sell the StripSecurities to the public;

9. The Strip Securities will be sold in series,each such series relating to one or more separate UnderlyingObligations of a single class or series of an Underlying Issuer;

10. The base shelf prospectus will describethe Programme for the creation and distribution of Strip Securitiesand the shelf prospectus supplement for a particular seriesof Strip Securities will describe the specific terms of suchStrip Securities;

11. The Strip Residuals of a particular serieswill consist of the entitlement to receive payments of allor a portion of the principal amounts payable under the UnderlyingObligations, if, as and when paid by the Underlying Issueron the Underlying Obligations, in accordance with their respectiveterms;

12. The Strip Coupons of a particular serieswill consist of the entitlement to receive a payment of allor a portion of the interest payable under the UnderlyingObligations, if, as and when paid by the Underlying Issueron the Underlying Obligations, in accordance with their respectiveterms;

13. The Strip Packages will consist of theentitlement to receive (a) in the case of Adjusted Rate Securitiesboth payments of all or a portion of the principal amountspayable and periodic payments of all or a portion of the interestpayable, under the Underlying Obligations; and/or (b) in thecase of packages consisting of Strip Coupons, periodic paymentsof all or a portion of the interest payable under the UnderlyingObligations, in each case, if, as and when paid by the UnderlyingIssuer on the Underlying Obligations, in accordance with theirrespective terms;

14. The owners of Strip Securities of oneseries will not be entitled to receive any payments from thecashflows of Underlying Obligations related to any other seriesof Strip Securities;

15. Holders of a series of Strip Securitieswill be entitled to payments from cashflows from the relatedUnderlying Obligations, if, as and when made by the respectiveUnderlying Issuer;

16. As the Underlying Issuers will be thesole obligors under the respective Underlying Obligations,holders of Strip Securities will be entirely dependent uponthe cashflows generated from the respective Underlying Obligations;

17. The Strip Securities of a series willbe sold at prices determined by the Filer and/or the sellinggroup engaged to distribute the series from time to time and,as such, these may vary as between purchasers of the sameseries and during the offering period of Strip Securitiesof the same series;

18. In quoting a price for the Strip Securitiesdistributed under the Prospectus, the Filer will advise thepurchaser of the annual yield to maturity thereof based onsuch price;

19. The Underlying Issuers will not receiveany proceeds, and the Filer will not be entitled to be paidany fee or commission by the Underlying Issuers, in respectof the sale by the Filer or members of any selling group ofthe Strip Securities;

20. The maturity date or dates of any particularseries of Strip Coupons and the maturity date or dates ofany interest component included in Strip Packages will becoincident with the interest payment dates for the UnderlyingObligations;

21. The maturity date of a particular seriesof Strip Residuals and the principal component of Strip Packages,if any, will be the maturity date of the Underlying Obligationsfor the series;

22. The Strip Securities will be issuablein Canadian or U.S. dollars and in such minimum denomination(s)and with such maturities as may be described in the applicableshelf prospectus supplement;

23. The Underlying Issuers will be Canadiancorporations or trusts. The Underlying Obligations will besecurities of the Underlying Issuers. The Strip Securitieswill be derived without regard, except as to ratings and eligibility,for the value, price, performance, volatility, investmentmerit or creditworthiness of the Underlying Issuers, historicallyor prospectively;

24. The Filer will cause all Underlying Obligationsfrom which the Strip Securities will be derived and whichare not already in The Canadian Depositary for SecuritiesLimited (including any nominee, "CDS") book-entrysystem to be delivered to CDS and registered in the name ofCDS. The Underlying Obligations from which the Strip Securitieswill be derived will, except in very limited circumstances,be held by CDS until their maturity and will not otherwisebe released or removed from the segregated account used byCDS to maintain the Underlying Obligations. A separate securityidentification number or ISIN will be assigned by CDS to eachseries of Strip Securities;

25. Pursuant to the operating rules and proceduresof its Debt Clearing Service (the "CDS Rules"),or any successor operating rules and procedures, CDS willmaintain book-entry records of ownership for the Strip Securities,entering in such records only the names of participants ("Participants")in the depository system of CDS. No purchaser of Strip Securitieswill be entitled to any certificate or other instrument fromthe Underlying Issuer, the Filer, CDS or otherwise, to evidencethe Strip Securities or the ownership thereof, and no purchaserof Strip Securities will be shown on the records maintainedby CDS except through the book entry account of a Participant.Upon the purchase of Strip Securities, the purchaser willreceive only the customary confirmation slip that will besent to such purchaser by the Filer or other Participant;

26. Transfers of beneficial ownership in StripSecurities will be effected through records maintained forStrip Securities by CDS or its nominee (with respect to interestsof Participants) and on the records of Participants (withrespect to interests of persons other than Participants).Under the CDS Rules, beneficial holders who are not Participants,but who desire to purchase, sell or otherwise transfer beneficialownership of, or any other interest in, such Strip Securitiesof a series, may do so only through Participants;

27. Payments in respect of a principal component(if any), interest component(s) (if any), or other amounts(if any) payable under a series of Strip Securities will,in accordance with the CDS Rules, be made from payments receivedby CDS in respect of the related Underlying Obligations fromor on behalf of the relevant Underlying Issuer. Amounts payableon the maturity of the Strip Securities will be payable bythe Underlying Issuer to CDS, as the registered holder ofthe Underlying Obligations. The Filer understands that followingreceipt thereof, CDS, in accordance with the CDS Rules, willpay each of its Participants shown on its records as holdingmatured Strip Securities the amount to which such Participantis entitled. The Filer understands that, in accordance withthe CDS Rules, each Participant who holds such Strip Securitieson behalf of a purchaser thereof will pay or otherwise accountto such purchaser for the amounts received by it in accordancewith the instructions of the purchaser to such Participant;

28. As the registered holder of the UnderlyingSecurities, CDS will receive any voting rights in respectof the Underlying Obligations for the Strip Securities. Inaccordance with the CDS Rules, CDS will allocate these rightsto the holders of the Strip Securities in accordance withthe operating rules and procedures of its Debt Clearing Service,or any successor operating rules and procedures, in effectat the time. These procedures currently provide for the distributionof the voting rights based on "proportionate economicinterest", determined as will be described in the Prospectus.Such voting rights will be vested on a series-by-series basisand the holders of one series of Strip Securities will nothave any entitlements vis-àvis voting rights in respectof another series. In order for a holder of Strip Securitiesto have a legal right to attend a meeting of holders of UnderlyingObligations, or to vote in person, such holder of Strip Securitiesmust be appointed as proxyholder for the purposes of the meetingby the CDS Participant through whom he or she holds StripSecurities;

29. Under the CDS Rules, if an UnderlyingIssuer repays a callable Underlying Obligation prior to maturityin accordance with its terms, CDS allocates the amount ofproceeds it receives as the registered holder of the UnderlyingObligations to the holders of the Strip Securities in accordancewith the operating rules and procedures of its Debt ClearingService, or any successor operating rules and procedures,in effect at the time. These procedures currently providefor the distribution of proceeds on the repayment of a callableUnderlying Obligation based on "proportionate economicinterest"; and

30. Under the CDS Rules, any other entitlementsreceived by CDS with respect to the Underlying Obligationsupon the occurrence of an event other than in respect of maturity,including entitlements on the insolvency or winding-up ofan Underlying Issuer, the non-payment of interest or principalwhen due, or a default of the Underlying Issuer under anytrust indenture or other agreement governing the UnderlyingObligations, will be processed by CDS in accordance with theoperating rules and procedures of its Debt Clearing Service,or any successor operating rules and procedures, in effectat the time. These procedures also currently provide for CDSto distribute the resulting cash and/or securities to theholders of the Strip Securities based on "proportionateeconomic interest". In addition, if the Underlying Issueroffers an option to CDS as the registered holder of the UnderlyingObligations in connection with the event, the Filer understandsthat CDS will attempt to offer the same option to the holdersof the Strip Securities, where feasible.

AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers underthe Legislation is that in respect of the Programme:

1. An exemption is granted from Section 2.1of NI 44-102 and Section 2.1 of NI 44-101 to permit a preliminaryshort form prospectus which is a preliminary base shelf prospectusand a short form prospectus which is a base shelf prospectusfor the Strip Securities to be filed and receipts issued therefor;

2. The requirements of the Legislation thatthe Prospectus contain a certificate of the issuer shall notapply; and

3. The requirements of the Legislation thatthe Prospectus incorporate by reference any document of anUnderlying Issuer shall not apply;

provided that:

A. The relevant Underlying Issuer will, tothe best of the Filer's knowledge at the Offering Date, beeligible to file a short form prospectus under NI 44-101 whetheror not such eligibility results from the specific qualificationcriteria of NI 44-101 or from the granting of an exemptionfrom those criteria;

B. The Underlying Obligations were distributedunder a prospectus for which a receipt was granted by theregulators in British Columbia, Alberta, Ontario and Quebec,and, in each case, at least four months have passed from thedate of closing of the original issue of the relevant classor series of Underlying Obligations and the distribution ofthe Underlying Obligations is complete;

C. A receipt issued for a base shelf prospectusin reliance on this Decision Document is not effective afterthe date 25 months from the date of its issue;

D. The offering and sale of the Strip Securitiescomplies with all the requirements of NI 44-102 and NI 44-101as varied by NI 44-102, other than those requirements fromwhich an exemption is granted by this Decision Document orfrom which an exemption is granted in accordance with Part11 of NI 44-102 by the securities regulatory authority orregulator in each of the Jurisdictions as evidenced by a receiptfor the Prospectus;

E. The Filer issues a press release and filesa material change report in respect of:

(i) a material change to the Programme whichaffects any of the Strip Securities, other than a changewhich is a material change to an Underlying Issuer; and

(ii) a change in the operating rules andprocedures of Debt Clearing Service of CDS which may havea significant effect on a holder of Strip Securities;

F. The Filer files the Prospectus, the materialchange reports referred to above, and all documents relatedthereto on SEDAR under a SEDAR profile for the Strip Securitiesand pays all filing fees applicable to such filings.

January 29, 2003.

"Margo Paul"