Final Rule: OSC Rule - 91-501 91-501CP - Strip Bonds

 

ONTARIO SECURITIES COMMISSION RULE 91-501
STRIP BONDS

PART 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions
1.2 Interpretation
PART 2 REGISTRATION AND PROSPECTUS EXEMPTIONS
2.1 Removal of Exemptions
2.2 Registration Exemption
2.3 Prospectus Exemption
PART 3 DELIVERY OBLIGATION
3.1 Delivery Obligation
PART 4 STRIP BOND INFORMATION STATEMENT
4.1 Contents of Strip Bond Information Statement
4.2 Acceptance of Strip Bond Information Statement
4.3 Revocation of Acceptance
PART 5 EXEMPTION
5.1 Exemption
PART 6 EFFECTIVE DATE
6.1 Effective Date

 

PART 1 DEFINITIONS AND INTERPRETATION

1.1 Definitions - In this Rule

"specified purchaser" means, at any specific time, a purchaser of a strip bond to whom a copy of a then-current strip bond information statement has not beendelivered;

"qualified market intermediary" means, for a specific trade of a strip bond, a market intermediary that, absent this Rule, would be permitted under Ontariosecurities law to make that trade if those strip bonds were securities described in subparagraph 1(a) of subsection 35(2) of the Act;

"strip bond" means

(a) an interest in an amount of principal or interest payable under an underlying bond, or in a pool of amounts of principal or interest payable under one or moreunderlying bonds, in either case in which the sole entitlement of the holder of the interest is to receive, at a specific future date, a sum certain in money that isfixed at the date of issue of the interest,

(b) a security that consists of at least two or more of the interests referred to in paragraph (a) and that is not an underlying bond, or

(c) a certificate or receipt representing an interest referred to in paragraph (a) or security referred to in paragraph (b);

"strip bond information statement" means an information statement that

(a) has been accepted by the Director, if that acceptance has not been revoked,

(b) contains the information referred to in section 4.1, and

(c) does not, in a material respect, contain any information that is misleading or untrue or omit to include any information that is necessary to make otherinformation in the information statement not misleading in the light of the circumstances in which it is made; and

"underlying bond" means a bond, debenture or other evidence of indebtedness of or guaranteed by the Government of Canada or any province or territory ofCanada or by any foreign country or any political division of a foreign country.

1.2 Interpretation

(1) For the purpose of the definition of "specified purchaser", a purchaser of a strip bond includes a beneficiary of a defined contribution pension plan for whosebenefit a strip bond is purchased, and who made the investment decision to purchase the strip bond.

(2) References in this Rule to "entering into an agreement of purchase and sale with a specified purchaser", or words to like effect, shall be read with reference toa purchaser referred to in subsection (1) to refer to entering into an agreement of purchase and sale with the defined contribution pension plan of which thepurchaser is a beneficiary.

PART 2 REGISTRATION AND PROSPECTUS EXEMPTIONS

2.1 Removal of Exemptions - The exemption in subparagraph 1(a) of subsection 35(2) of the Act and the exemption in subsection 73(1) of the Act that is basedon subparagraph 1(a) of subsection 35(2) of the Act are not available for a trade in a strip bond.

2.2 Registration Exemption - Section 25 of the Act does not apply to a trade in a strip bond made by

(a) a person or company that is not a market intermediary;

(b) a qualified market intermediary to a person or company that is not a specified purchaser; or

(c) a qualified market intermediary to a specified purchaser if the qualified market intermediary delivers a strip bond information statement to the specifiedpurchaser before the specified purchaser enters into an agreement of purchase and sale relating to the trade.

2.3 Prospectus Exemption - Section 53 of the Act does not apply to a trade in a strip bond

(a) of a type referred to in section 2.2;

(b) by a qualified market intermediary to a person or company that is not a specified purchaser; or

(c) by a registrant in accordance with section 3.1.

PART 3 DELIVERY OBLIGATION

3.1 Delivery Obligation - Every registrant, before entering into an agreement of purchase and sale relating to a trade in a strip bond with a specified purchaser,shall deliver a strip bond information statement to the specified purchaser.

PART 4 STRIP BOND INFORMATION STATEMENT

4.1 Contents of Strip Bond Information Statement - A strip bond information statement shall clearly describe

(a) the nature of strip bonds, the rights of holders of strip bonds and how strip bonds differ from conventional interest-bearing debt securities;

(b) the fluctuations, and volatility of fluctuations, in the market price and value of strip bonds resulting from fluctuations in interest rates;

(c) the effect on the volatility of fluctuations referred to in paragraph (b) associated with the time to maturity of strip bonds;

(d) the secondary market for strip bonds and underlying bonds;

(e) custodial arrangements for strip bonds and underlying bonds;

(f) the Canadian federal income tax consequences of buying, selling and holding strip bonds; and

(g) the existence of dealer mark-ups or commissions on the purchase and sale of strip bonds and the impact, illustrated in tabular form, of different mark-ups orcommissions on the yield to maturity of a strip bond, and shall include a statement inviting the prospective purchaser or seller of a strip bond to compare the yieldto maturity of the strip bond, calculated after giving effect to any applicable dealer mark-up or commission, against the similarly calculated yield to maturity of aconventional interest-bearing debt security, and to inquire about the dealer's bid and ask prices for the subject strip bond.

4.2 Acceptance of Strip Bond Information Statement

(1) The Director shall accept a proposed strip bond information statement if the strip bond information statement complies with section 4.1.

(2) The Director shall not refuse to accept a strip bond information statement without giving the person or company who submitted the strip bond informationstatement for acceptance an opportunity to be heard.

(3) The person or company that submits a proposed strip bond information statement to the Director for acceptance shall file the strip bond informationstatement within seven days after its acceptance.

4.3 Revocation of Acceptance

(1) The Director may revoke an acceptance of a strip bond information statement if the strip bond information statement does not comply with section 4.1.

(2) The Director shall not revoke an acceptance of a strip bond information statement without giving the person or company who filed the strip bond informationstatement an opportunity to be heard.

PART 5 EXEMPTION

5.1 Exemption - The Director may grant an exemption to this Rule, in whole or in part, subject to such conditions or restrictions as may be imposed in theexemption.

PART 6 EFFECTIVE DATE

6.1 Effective Date - This Rule comes into force on May 1, 1998.