Proposed National Policy: NP - 47-201 - Trading in Securities using the Internet and Other Electronic Means

Proposed National Policy: NP - 47-201 - Trading in Securities using the Internet and Other Electronic Means

Request for Comment National Policy



NOTICE OF NATIONAL POLICY 47-201
TRADING IN SECURITIES USING THE INTERNET
AND OTHER ELECTRONIC MEANS

Purpose of Proposed Policy

Introduction

The purpose of the proposed National Policy (the "Policy") is to state the views of the CanadianSecurities Administrators ("CSA") on a number of matters relating to the use of the Internet andother electronic means of communication in connection with trades and distributions ofsecurities.

The Policy is an initiative of the CSA and is expected to be implemented as a policy in all of thejurisdictions of the CSA. The Policy is being published for comment concurrently with proposedPolicy 11-201 Delivery of Documents by Electronic Means.

Background

On June 13, 1997, the CSA published Concept Proposal respecting Delivery of Documents byIssuers using Electronic Media (1997) 20 OSCB 3075, and requested comments in connectiontherewith. At that time, the CSA struck a committee to address the regulatory issues arising out ofthe use of the Internet and other electronic media by market participants. This CSA committee hasheld numerous meetings to consider the comments received from the twelve parties thatresponded to the Request for Comments. A summary of the comments received and the CSAresponse to some of those comments are attached as Appendix A to the Notice relating toNational Policy 11-201.

It became apparent to the CSA committee considering the Request for Comments that theelectronic delivery of documents in connection with trades in, and offerings of, securities raisedissues that went beyond merely complying with statutory delivery obligations. The committee feltthat the issues of jurisdiction, registration and other statutory requirements in connection withtrading and offering securities via electronic means were sufficiently important to justify aseparate national policy.

 

CSA Approach to Trading in Securities Using the Internet and Other Electronic Means

The CSA has decided that statutory requirements relating to trading and offering securities shouldnot change as a result of the involvement of the Internet or other electronic means. That is to saythat in the absence of the Policy, a trade or offering involving the Internet or other electronicmeans could still take place, provided that appropriate securities legislation is complied with. ThePolicy represents the CSA views on how best to comply with securities legislation when electronicmedia is used and points out issues that a market participant should consider when conductingtrades or offerings on the Internet.

Summary of the Policy

Part 1. Part 1 contains a number of general provisions concerning the Policy.

Section 1.1 sets out the purpose of the Policy, which is to state the views of the Canadiansecurities regulatory authorities on a number of matters relating to the use of the Internet andother electronic means of communication in connection with trades and distributions ofsecurities.

Section 1.2 refers market participants to Policy 11-201, which states the views of the Canadiansecurities regulatory authorities concerning the use of electronic means to satisfy the deliveryrequirements of Canadian securities legislation.

Part 2. Part 2 addresses a number of issues relating to the use of the Internet for trading insecurities.

Section 2.1 notes the interjurisdictional nature of the Internet, and the resulting need for issuersand other market participants to consider how they will satisfy the registration and prospectusrequirements contained in Canadian securities legislation, as well as similar requirements underthe securities laws of foreign jurisdictions.

Section 2.2 states that the CSA generally consider a person or company to be trading in securitiesin a jurisdiction if that person or company posts on the Internet a document that offers, or solicitstrades of, securities, if that document is accessible to persons or companies in that jurisdiction.Under certain circumstances, however, such a posting of a document on the Internet is notconsidered by the CSA to be a trade or, if applicable, a distribution in a jurisdiction. Thesecircumstances exist if

(a) the document contains a prominent disclaimer that identifies the jurisdictions orforeign jurisdictions in which the offering or solicitation is qualified to be made, notincluding that particular jurisdiction; and

(b) reasonable precautions are taken by all persons or companies offering or solicitingtrades of securities through the document not to sell to anyone resident in thatparticular jurisdiction.

Section 2.2 also reminds market participants that registration requirements apply to the posting ofa prospectus or other offering document on the Internet in connection with a distribution in ajurisdiction. The act of posting the prospectus or offering document in those circumstances is anact in furtherance of a trade in that jurisdiction, and the person or company posting theprospectus or offering document must satisfy the registration requirements of the jurisdiction, orrefer all inquiries concerning the document to a registered dealer.

Section 2.3 states that a person or company located in British Columbia, Alberta or Quebec that isdistributing securities entirely outside of those jurisdictions through the Internet is considered tobe trading within those jurisdictions, and is therefore subject to applicable registration andprospectus requirements in those jurisdictions.

Section 2.4 reminds Canadian issuers and other market participants to consider the requirementsof securities laws of foreign jurisdictions when they post materials on a Web site that can beaccessed by persons or companies there. Section 2.4 notes that some foreign securitiesregulators have informed the market on their views concerning these matters, and issuers andother market participants are referred to a recent report of the Technical Committee of theInternational Organization of Securities Commissions that references the rules, policies andguidelines of various international securities regulators on these matters.

Section 2.5 notes the requirement contained in Canadian securities legislation for persons andcompanies distributing securities under a prospectus to record the name of all persons orcompanies that have received a copy of the preliminary prospectus, whether in paper form ordistributed by electronic means. Section 2.5 states that this requirement can be satisfied inconnection with the electronic distribution of a prospectus if a person or company monitors whohas had access to information or requires a written or electronic consent form from each recipientof a preliminary prospectus.

Section 2.6 states that the posting of new information on a Web site during a period of distributionmay be construed as advertising, which is subject to restrictions in certain jurisdictions.

Section 2.7 deals with a number of issues relating to the use of the Internet to transmit roadshows. The section notes that, in principle, the Canadian securities regulatory authorities do notobject in principle to an issuer or underwriter transmitting roadshows electronically over theInternet during the waiting period prescribed by Canadian securities legislation in connection witha distribution of securities. Section 2.7 sets out guidelines that are recommended to ensure thatthe transmission of a roadshow complies with the waiting period requirements and Canadiansecurities legislation generally. The guidelines include a reminder that information provided in theroadshow not be inconsistent with the information contained in the applicable preliminaryprospectus; that a copy of the preliminary prospectus be made available to all viewers of thetransmission; that electronic access to the Internet transmissions of a roadshow be controlled bythe issuer or underwriter conducting the roadshow to ensure that all viewers are identified andhave been offered a preliminary prospectus; and that all viewers of the transmission should agreenot to copy, download or further transmit the transmissions.

Part 3. Part 3 states that the Policy comes into force on a date not yet specified. That date willbe included in the Policy when the Policy is finalized.

Unpublished Materials

In proposing the National Policy, the CSA have not relied on any significant unpublished study,report, decision or other written materials.

Related Instruments

In Ontario, the Policy is related to the provisions of the Securities Act (Ontario) that govern thetrading and distribution of securities, including Parts XI (Registration), XV (Prospectuses -Distribution) and XVI (Distribution - Generally).

Comments

Interested parties are invited to make written submissions with respect to the Policy.Submissions received by February 17, 1999 will be considered.

Submissions should be sent to all of the Canadian securities regulatory authorities listed below incare of the Ontario Commission, in duplicate, as indicated below:

British Columbia Securities Commission
> Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
> Ontario Securities Commission
Office of the Administrator, New Brunswick
> Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Department of Government Services and Lands, Newfoundland and Labrador
Registrar of Securities, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon Territory

> c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
> 20 Queen Street West
Suite 800, Box 55
> Toronto, Ontario M5H 3S8

Submissions should also be addressed to the Commission des valeurs mobilières du Québec asfollows:

Claude St Pierre, Secretary
> Commission des valeurs mobilières du Québec
Stock Exchange Tower
> 800 Victoria Square
P.O. Box 246, 22nd Floor
> Montréal, Québec H4Z 1G3

A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect)should also be submitted. As securities legislation in certain provinces requires that a summaryof the written comments received during the comment period be published, confidentiality ofsubmissions received cannot be maintained.

Questions may be referred to any of:

> Brenda Benham

Director of Policy and Legislation


British Columbia Securities Commission

> (604) 899-6635

E-mail: [email protected]

Melody Schalm

> Legal Counsel, Policy & Legislation

British Columbia Securities Commission

> (604) 899-6644

E-mail: [email protected]

Marsha Manolescu

> Legal Counsel, Applications

Alberta Securities Commission

> (403) 422-1914

E-mail: [email protected]

> Barbara Shourounis

Director

> Saskatchewan Securities Commission

(306) 787-5842

> E-mail: [email protected]

Sylvie Lalonde

> Policy Advisor

Commission des valeurs mobilières du Québec

> (514) 940-2150

E-mail: [email protected]

> Randee Pavalow

Policy Coordinator

> Ontario Securities Commission

(416) 593-8257

> E-mail: [email protected]

Terry Moore

> Legal Counsel, Market Operations

Ontario Securities Commission

> (416) 593-8133

E-mail: [email protected]

> Bill Slattery

Director of Corporate Finance and Administration

> Nova Scotia Securities Commission

(902) 424-7355

> E-mail: [email protected]

Text of Policy

The text of the Policy follows, together with footnotes that are not part of the National Policy buthave been included to provide background and explanation.

DATED: December 18, 1998.

 


NATIONAL POLICY 47-201

TRADING IN SECURITIES USING THE INTERNET ANDOTHER ELECTRONIC MEANS
TABLE OF CONTENTS

PART TITLE

PART 1 GENERAL
> 1.1 Purpose of this Policy
1.2 National Policy 11-201

PART 2 USE OF THE INTERNET FOR TRADING IN SECURITIES
> 2.1 General Jurisdictional Issue
2.2 Trading in a Jurisdiction
2.3 Trading from a Jurisdiction
> 2.4 Application of Securities Laws of Foreign Jurisdictions
2.5 Distribution Lists
> 2.6 Advertising
2.7 Roadshows

PART 3 EFFECTIVE DATE
> 3.1 Effective DateNATIONAL POLICY 47-201TRADING IN SECURITIES USING THE INTERNET AND OTHER ELECTRONIC MEANS

PART 1 GENERAL

1.1 Purpose of this Policy

>(1) In recent years, market participants have begun using the Internet and other electronicmeans of communication to offer and sell securities and to facilitate distributions ofsecurities. While the use of these methods of communication can be beneficial to marketparticipants, enabling them to provide and access information in a timely, cost-efficientand user-friendly manner, the Canadian securities regulatory authorities(1) recognize thatthe use of the Internet and other electronic means of communication in this context canraise investor protection concerns and issues concerning the application of securitieslaw.

(2) The purpose of this Policy is to state the views of the Canadian securities regulatoryauthorities on a number of matters relating to the use of the Internet and other electronicmeans of communication in connection with trades and distributions of securities.

1.2 National Policy 11-201 - Market participants are referred to National Policy 11-201 Delivery ofDocuments by Electronic Means for a discussion of the views of the Canadian securitiesregulatory authorities concerning the use of electronic means to satisfy the deliveryrequirements of Canadian securities legislation(2).

PART 2 USE OF THE INTERNET FOR TRADING IN SECURITIES

2.1 General Jurisdictional Issue - Information on the Internet may reach both intended recipientsand anyone else in the world who has access to the Internet. The interjurisdictional natureof the Internet makes it important for issuers and other market participants to consider howthey will satisfy the registration and prospectus requirements contained in Canadiansecurities legislation and similar requirements under the securities laws of foreignjurisdictions(3).

2.2 Trading in a Jurisdiction(4)

(1) The Canadian securities regulatory authorities generally consider a person or company(5)to be trading in securities in a jurisdiction if that person or company posts on the Interneta document that offers, or solicits trades of, securities, if that document is accessible topersons or companies in the jurisdiction.

(2) Despite subsection (1), the Canadian securities regulatory authorities consider the postingof a document on the Internet that offers, or solicits trades of, securities, not to be a tradeor, if applicable, a distribution, in a jurisdiction if

> (a) the document contains a prominently displayed disclaimer that expressly identifiesthe jurisdictions or foreign jurisdictions in which the offering or solicitation isqualified to be made, and that identification does not include the jurisdiction; and

(b) reasonable precautions are taken by all persons or companies offering or solicitingtrades of securities through the document not to sell to anyone resident in thejurisdiction.

> (3) Market participants are reminded that the registration requirements of Canadian securitieslegislation apply in connection with the posting of a prospectus or other offeringdocument on the Internet for use in connection with a distribution in a jurisdiction, evenassuming that the distribution may be legally effected in the jurisdiction. The act ofposting the prospectus or offering document in those circumstances is an act infurtherance of a trade in that jurisdiction, and the person or company posting theprospectus or offering document must, in order to comply with the registrationrequirements

(a) be registered to trade in the jurisdiction;

> (b) have the benefit of an exemption from the registration requirements in connectionwith the distribution; or

(c) refer all inquiries concerning the document to a registered dealer.

2.3 Trading from a Jurisdiction - A person or company located in British Columbia, Alberta orQuebec that is distributing securities entirely outside of those jurisdictions through theInternet is considered to be trading within those jurisdictions and is therefore subject toapplicable registration and prospectus requirements in those jurisdictions. The Canadiansecurities regulatory authorities in those jurisdictions may provide relief from thoseprovisions in appropriate circumstances.

2.4 Application of Securities Laws of Foreign Jurisdictions - Canadian issuers and other marketparticipants are reminded that foreign securities regulators may take the view that documentsposted on a Web site that are accessible by persons or companies in their country mayconstitute an offering of securities there. In some foreign jurisdictions, securities regulatorshave informed the market as to the steps that should be taken to ensure that those regulatorswill not take the view that a document on a Web site constitutes an offering of securities inthat foreign jurisdiction. Some of those steps could include the use of disclaimers in thedocuments or measures that restrict access to the document. Issuers and other marketparticipants are urged to inform themselves of any relevant guidelines in this regard.Reference is made to a report of the Technical Committee of the International Organizationof Securities Commissions (IOSCO) dated September 1998 entitled "Securities Activity on theInternet", which is available on the Web site of IOSCO at www.iosco.org. The annex to thatreport refers market participants to the rules, policies and guidelines of various internationalsecurities regulators on these matters.

2.5 Distribution Lists

> (1) Canadian securities legislation requires any person or company distributing securitiesunder a prospectus to record the name of all persons or companies that have received acopy of the preliminary prospectus. Issuers and registrants are reminded that thisrequirement applies whether a preliminary prospectus is distributed in paper form ordistributed by electronic means.

(2) The Canadian securities regulatory authorities are of the view that no relief from thisrequirement is necessary or warranted in connection with the electronic distribution ofprospectuses, since current technology makes it feasible for a person or company toeither monitor who has had access to information or require a written or electronicconsent form from each recipient of a preliminary prospectus.

> (3) In order to comply with Canadian securities legislation, a person or company shouldtherefore record the name of all persons or companies that receive a copy of a preliminaryprospectus by electronic means, including those persons or companies that merely viewa preliminary prospectus by electronic means.

2.6 Advertising - Persons or companies should be aware that the posting of new information ona Web site during a period of distribution may be construed as advertising, which is subjectto restrictions in certain jurisdictions.

2.7 Roadshows

> (1) Canadian securities legislation restricts the dissemination of information about an issuerengaging in a distribution that may occur during the "waiting period", which is the timebetween the issuance of a receipt for the preliminary prospectus pertaining to thedistribution and the issuance of a receipt for the final prospectus. Those provisionspermit the solicitation of expressions of interest from prospective purchasers during thewaiting period, which is often undertaken through presentations, commonly known asroadshows, made by registrants to those persons or companies. Market participants havebegun to transmit roadshows electronically over the Internet.

(2) The Canadian securities regulatory authorities do not object in principle to an issuer orunderwriter holding a roadshow over the Internet during the waiting period in connectionwith a distribution of securities. However, care should be taken to ensure that thetransmission of a roadshow over the Internet complies with the waiting periodrequirements and Canadian securities legislation generally. In this connection, thefollowing guidelines are recommended:

> 1. As with any roadshow, issuers and underwriters should take reasonable steps toensure that information disclosed in a roadshow transmission is not inconsistent withthe preliminary prospectus that has been filed in connection with the distribution.

2. A copy of the filed preliminary prospectus should be made available to each viewerbefore each roadshow transmission, and each transmission should contain visualstatements emphasizing the pre-eminence of the information contained in thepreliminary prospectus over other information provided in the roadshow. A copy ofthe preliminary prospectus could be sent electronically to viewers in accordance withthe guidelines contained in National Policy 11-201.

> 3. Electronic access to the Internet transmissions of a roadshow should be controlledby the issuer or underwriter conducting the roadshow, using such means aspassword-protection, in order to ensure that all viewers are identified and have beenoffered a preliminary prospectus. Any persons or companies that are "prospectivepurchasers" within the meaning of the provisions of securities legislation(6) relating toroadshows may be invited to view the roadshow.

> 4. An issuer or underwriter should not transmit a roadshow to a person or companyunless that person or company has agreed not to copy, download or further distributethe transmissions. An issuer or underwriter should take reasonable steps to preventcopying, downloading or further distribution of transmissions.

PART 3 EFFECTIVE DATE

3.1 Effective Date - This National Policy comes into force on .

Footnotes


1. The term "Canadian securities regulatory authorities" is defined in National Instrument 14-101 as meaning the securities commissionsor similar regulatory authorities set out in an appendix to that instrument.

2. The term "Canadian securities legislation" is defined in National Instrument 14-101 Definitions as meaning the statutes and otherlegislative instruments set out in an appendix to that instrument and will generally include the statute, regulations and, in some cases,rules, forms, rulings and orders relating to securities.

3. The term "foreign jurisdiction" is defined in National Instrument 14-101 Definitions. The definition is "a country other than Canada,or political subdivision of a country other than Canada".

4. The term "jurisdiction" is defined in National Instrument 14-101 Definitions as meaning a province or territory of Canada, exceptwhen used in the term foreign jurisdiction.

5. The term "person or company" is defined in National Instrument 14-101. The definition defines "person or company" as, for thepurpose of a national instrument in British Columbia, a "person" as defined in Section 1 of the Securities Act (British Columbia),and, for the purposes of a national instrument in Quebec, a "person" as used in the Securities Act (Quebec).

6. The term"securities legislation" is defined in National Instrument 14-101Definitions as meaning the particular statute and legislative instruments of thelocal jurisdiction set out in an appendix to that instrument and will generallyinclude the statute, regulations and, in some cases, the rules, forms, rulingsand orders relating to securities in the local jurisdiction.