NOTICE OF PROPOSED RULE, POLICY AND FORMS
UNDER THE SECURITIES ACT
PROPOSED RULE 45-501 EXEMPT DISTRIBUTIONS
COMPANION POLICY 45-501CP
FORMS 45-501F1 AND 45-501F2
RESCISSION OF ONTARIO SECURITIES COMMISSION POLICY 6.1
On October 17, 1997, the Commission published the proposed Rule, two forms and a Companion Policy for comment at (1997), 20 OSCB 5287 (the "OctoberMaterial"). As a result of staff's recommendations, comments received and further deliberations of the Commission, the Commission has amended the proposedRule, Companion Policy and Forms and is republishing them for comment.
Proposed Rule 45-501 Exempt Distributions consolidates various provisions currently set forth in the following rules (the "Replacement Rules") of the OntarioSecurities Commission (the "Commission"):
(1) In the Matter of Trades by Issuers Upon Exercise of Certain Conversion or Exchange Rights and In the Matter of the First Trade in Securities AcquiredUpon Exercise of Such Conversion or Exchange Rights (1997), 20 OSCB 1218, as amended at (1998), 21 OSCB 2333, that incorporated by reference a BlanketRuling of the same name (1994), 17 OSCB 2877 ("Trades by Issuers on Certain Conversions or Exchanges"),
(2) In the Matter of Certain Proposed Amendments (1997), 20 OSCB 1220, as amended at (1988), 21 OSCB 2334, that incorporated by reference a BlanketOrder of the same name (1987), 10 OSCB 5936 ("Hold Periods and First Trades For Convertible Securities and Underlying Securities"),
(3) In the Matter of Trades by Issuers in Connection with Securities Exchange Issuer Bids and by Holders of Securities of a Company to Another Company inConnection with an Amalgamation, an Arrangement or a Specified Statutory Procedure (1997), 20 OSCB 1218, as amended at (1998), 21 OSCB 2332, thatincorporated by reference a Blanket Ruling of the same name (1994), 17 OSCB 1975 ("Trades on Securities Exchange Issuer Bids and Amalgamations"),
(4) In the Matter of Trades in Securities of a Private Company Under the Execution Act (1997), 20 OSCB 1218, as amended at (1998), 21 OSCB 2330, thatincorporated by reference a Blanket Ruling of the same name (1985), 8 OSCB 127 ("Trades in Securities of a Private Company"), and
(5) In the Matter of Dividend Reinvestment Plans (1997), 20 OSCB 1218, as amended at (1998), 21 OSCB 2335, that incorporated by reference a BlanketRuling of the same name (1994), 17 OSCB 1178 ("Dividend Reinvestment Plans").
In addition, certain provisions of Ontario Securities Commission Policy Statement No. 6.1 ("Policy 6.1") and sections 14 to 32 and 67 and 68 of the Regulationto the Act (other than clauses 14(e) and 19(5) of the Regulation which are incorporated in Rule 45-502 Dividend or Interest Reinvestment and Stock DividendPlan and clause 14(g) which is incorporated in Rule 32-503 Registration and Prospectus Exemptions for Trades by Financial Intermediaries in Mutual FundSecurities to Corporate Sponsored Plans and section 15 which has been revoked by an amendment to Rule 32-503) and subsection 69(3) and clause 151(a) of theRegulation are restated in this Rule. Sections 22 and 25 of Schedule I to the Regulation are also restated in this Rule.
Substance and Purpose of the Proposed Rule, Companion Policy and Forms
As will be evident from the text of the proposed Rule, Companion Policy and Forms, as well as the description of the instruments set out below, the scope of thereformulation exercise was to consolidate and streamline existing exemptions and requirements relating to exempt distributions.
The purpose of the proposed Rule is to consolidate the requirements concerning exempt distributions currently contained in Part III of the Regulation, theReplacement Rules and certain provisions of Policy 6.1 which are to be adopted as a rule. In addition, the proposed Rule establishes some new exemptions fromthe registration and prospectus requirements of the Act and provides for the removal of certain exemptions in the Act and the proposed Rule unless requirementscontained in the proposed Rule are met. The proposed Rule also sets out restrictions on the resale of securities purchased in reliance on certain exemptions.
The purpose of the Policy is to set forth the views of the Commission as to the manner in which the proposed Rule and the provisions of the Act relating toexempt distributions are to be interpreted and applied.
The purpose of the Forms is to replace the current forms for reporting certain trades under subsection 72(3) or (4) of the Act and provides a method forreporting trades under certain sections of the proposed Rule and Rule 45-504 Distribution of Securities to Portfolio Advisors on Behalf of Fully ManagedAccounts (1998), 21 OSCB 959.
A summary of the October Material may be found in the Notice at (1997), 20 OSCB 5287.
Summary of Changes to the Proposed Rule and Forms
Part 2 of the proposed Rule provides for certain exemptions from the registration and prospectus requirements in addition to those contained in the Act.
Section 2.3 has been expanded to permit trades amongst promoters and control persons. This change was made in response to a comment received on theproposed Rule. See the discussion under "Expansion of Exemptions Based on Relationship to Issuer or Promoter" below.
Section 2.4 of the proposed Rule restates and amends the current exemptions for government incentive securities by imposing requirements similar to thoseimposed for trades under the seed capital exemptions. The seed capital exemption is subject to a restriction that the promoter has not acted as a promoter of anyother issuer which has traded in securities of its own issue pursuant to the seed capital exemption within the previous twelve months. The Commission is of theview that this restriction should be added to section 2.4 as there is no policy rationale for these exemptions being subject to different restrictions on their use bypromoters.
Sections 2.7 and 2.8 restate the prospectus and registration exemptions provided in the rule Trades on Securities Exchange Issuer Bids and Amalgamations.Section 2.8 expands the current "reorganization" exemption provided in clause 72(1)(i) to transactions, such as "three cornered mergers or amalgamations", thatare currently not exempt for technical reasons. In response to a comment received, the Commission has broadened section 2.8 to refer to issuers rather than tocompanies. See the discussion under "Amalgamations" below.
A number of sections of the proposed Rule provide exemptions for or restrictions on the first trade in a convertible or an exchangeable security. The purpose ofthese provisions is to recognize that the number of exchanges or conversions that occur from the time of the original private placement to the time of the ultimateresale is irrelevant. A commenter noted that this was not clear from the wording of the Rule. (See the discussion under "Double Convertibles" below.) In order toclarify that the exemption is not limited to two levels of conversion, the term "double convertible security" has been changed to "multiple convertible security".This change has been made in the definitions of double convertible security and underlying security in section 1.1 and in sections 2.9, 2.10, 2.13, 2.16, 3.11, 6.4and 6.5 of the proposed Rule. In addition, section 2.13 has been amended to clarify that the hold period is the aggregate period of time that any one or more ofthe convertible / exchangeable security and underlying security have been held.
The hold periods in sections 2.13, 6.2 and 6.4 of the proposed Rule have been amended so that they run from the date of the initial exempt trade and not from thedate of the acquisition of the security by the seller. These sections were the subject of extensive comment. The Commission has accepted the arguments madethat "tacking" of hold periods should be permitted. See the discussion under "Tacking" below.
Section 2.16 creates an exemption for a first trade in underlying securities if the distribution of the multiple convertible or exchangeable security is qualified byprospectus. This exemption has been amended to provide that, in the case of exchangeable securities, the issuer of the underlying security must be a reportingissuer at the time of the first trade.
Section 3.6 has been expanded so that the exemption in clause 72(1)(p) of the Act is not available if the promoter is a registered dealer and has acted as promoterof any other issuer within the last 12 months.
In light of Rule 13-501 Payment of Fees, fees payable with respect to trades reported on Forms 45-501F1 and 45-501F2 are to be paid to the Ontario SecuritiesCommission. In addition, the Forms have been amended to provide for reporting of trades made under Rule 45-504 Distribution of Securities to PortfolioAdvisors on Behalf of Fully Managed Accounts (1998), 21 OSCB 959.
Summary of Changes to the Proposed Policy
Since section 2.8 of the Rule has been broadened to refer to issuers rather than corporations, corresponding changes have been made to section 2.3 of the Policy.
As noted above, whether "tacking" of hold periods is or should be allowed was the subject of extensive comment and the Commission has accepted thearguments that were made both on policy grounds and based on the technical wording of the legislation and has concluded that the phrase "initial exempt trade"permits tacking of hold periods. Consequently, section 2.5 of the Policy has been amended to provide that in the Commission's view the phrase "initial exempttrade" refers to the first trade made in reliance on an exemption from the prospectus requirements and that therefore tacking is permitted.
In response to comments received, subsection 3.2(3) no longer includes the creditworthiness of the debtor in the factors to be taken into account in determiningthe fair value of liabilities assumed or incurred for the purposes of paragraph 3.2(2)(b) of this Rule.
Summary of Written Comments Received by the Commission
The comment period on the October Material expired on January 15, 1998. The Commission received submissions from six commenters. The commenters arelisted in Appendix A to this Notice.
The Commission has considered the comments received, and thanks all commenters for providing their comments.
Discussion of General Comments
1. Legislative Changes to the Act
One commenter commended the Commission on the consolidation into one rule of the various exemptions that to date have been found throughout the Act, theRegulation, Policy 6.1 and in various rules. The commenter noted that the Act would be even more "user friendly" were the Act to be amended to reflect thesechanges and encouraged the Commission to consider the possibility of seeking legislative change to the Act.
The Commission agrees that in some cases amending the Act would be helpful. The Commission intends to pursue other changes to update and simplify the Actas opportunities arise. As an interim measure, the Commission has made necessary changes in the proposed Rule and has simplified the regulatory system byeliminating the regulations that relate to exempt distributions. The Commission disagrees with the commenter's suggestion that all changes should be made to theAct. The Commission believes that having certain exemptions and restrictions in the proposed Rule, as opposed to the Act, provides it with the necessaryflexibility to make changes in future.
2. Consolidation of Rules regarding Exempt Distributions
One commenter suggested that the proposed Rule might be an appropriate place to include the subject matter of the Rule In The Matter of Trades by an Issuerin Securities of its Own Issue to Senior Officers, Directors, Personal Holding Companies and Registered Retirement Savings Plans and a ControllingShareholder in Securities of an Issuer to Employees, Senior Officers, Directors, Personal Holding Companies and Registered Retirement Savings Plans (1997),20 OSCB 1218, as amended at (1998), 21 OSCB 2335.
At an earlier stage of the reformulation process the Commission considered whether to integrate proposed Rule 45-503 Trades to Employees, Executives andConsultants into Rule 45-501. Commission staff felt and the Commission agreed that given the subject matter and complexity of Rule 45-503, it was better left asa stand alone rule.
3. Uniformity Among Jurisdictions
One of the commenters indicated that a number of the provinces have enacted different private placement exemptions and that there did not appear to be anyeffort in the Rule or Companion Policy to attempt to make the Ontario private placement rules similar to those in other provinces. The commenter noted thatdiffering private placement exemptions can give rise to difficulties of compliance.
The Commission recognizes that different provinces have different private placement exemptions and that this puts a regulatory burden on issuers and theircounsel. While this is not a National Instrument, staff of the Alberta and British Columbia securities commissions were involved in discussions regarding theformulation of the proposed Rule. Nonetheless, harmonization of the private placement rules in all jurisdictions is beyond the scope of this project.
4. Use of Policy Statements
One commenter suggested that the use of policy statements should be limited and to the extent the interpretation of requirements has been settled in sufficientdetail to be included in a companion policy, that interpretation should be incorporated in the rules themselves.
The Commission disagrees with the comment as to the use of the Companion Policy here. Section 143.8 of the Act recognizes that the Commission may chooseto publish policies regarding, among other things, the manner in which a provision of the Act, the regulations or the rules is interpreted or applied by theCommission or the Director. In making the Rule and Companion Policy, the Commission has had regard to the appropriate location of the various provisions thatform the proposed Rule and Companion Policy and believes that it has acted in accordance with the Act and struck the appropriate balance between the rule andpolicy.
5. Integrated Disclosure System
One commenter encouraged the Commission to review the closed system in the context of a fully integrated disclosure system.
As stated in the October 1997 Notice accompanying the proposed Rule, the Commission recognizes that the Rule and related instruments are, at best, onlypartial, interim measures in addressing the administrative burdens, expense and complexity of the closed system generally. The Commission is well aware of thedifficulties inherent in the existing closed system framework and would anticipate that future consideration by the Canadian Securities Administrators of theappropriateness of an integrated disclosure model in Canada will necessitate a reconsideration of whether, and to what extent, the existing "closed system"framework would have to be altered, or perhaps eliminated, in such an environment.
6. Distributions Outside Ontario
One commenter encouraged the Commission to consider dealing in this Rule, or in another instrument, with Interpretation Note 1 regarding DistributionsOutside Ontario.
Distributions outside Ontario will be the subject of a separate rule and / or policy initiative.
Discussion of Specific Comments on the Proposed Rule
A. Prospectus Exemptions
1. Expansion of Exemptions Based on Relationship to Issuer or Promoter
One commenter submitted that given that section 2.2 of the proposed Rule provides that trades between control persons are exempt trades and section 2.3 of theproposed Rule provides that trades by issuers to promoters and trades between promoters are exempt trades, it would seem to follow that trades by issuers tocontrol persons and trades between promoters and control persons should also be exempt trades. The commenter felt that the overall policy reasons for theprospectus and registration requirements of the Securities Act would not seem to apply in the context of those trades.
The Commission agrees that in light of the current exemptions for trades amongst promoters and trades amongst control persons, permitting trades betweenpromoters and control persons does not raise any policy concerns and has amended the proposed Rule to exempt trades between promoters and control persons.The Commission is, however, of the view that trades by an issuer to control persons raises the potential for backdoor distributions and therefore is not preparedto make this suggested change.
2. Expansion of Exemption for Assets having a Fair Value of at least $150,000
One commenter indicated that there seems to be no reason why the registration and prospectus exemptions in paragraph 35(1)18 and clause 72(1)l of theSecurities Act should be restricted to trades by issuers in securities of their own issue. If the value of the securities being transferred is at least $150,000, thecommenter was of the view that it should from a policy rationale basis not matter if the securities involved are not treasury securities or that the issuer of thesecurities is not a party to the trade. Accordingly, the commenter was of the view that section 3.5 of the proposed Rule should be expanded to permit theforegoing.
The Commission is of the view that the suggested change is not necessary because an issuer which trades securities having a value of at least $150,000 that arenot of its own issue should have available to it the exemptions in paragraph 35(1)5 and clause 72(1)(d) of the Securities Act and consequently has deletedparagraph 1 of section 3.2 of the Companion Policy.
3. Accredited Investor Test
One commenter felt that the $150,000 threshold found in the prospectus exemption in clause 72(1)(d) of the Act is a crude measure and that that exemptionshould be replaced by an accredited investor exemption along the lines of the one proposed by the Task Force on Small Business Financing.
Generally, the Commission agrees that the $150,000 threshold is a crude measure and that an "accredited investor" exemption similar to that available under U.S.securities rules is conceptually attractive because it would permit a broader class of investors, based on their sophistication and ability to evaluate investments, tomake investments on an exempt basis.
The Final Report of the Task Force on Small Business Financing dated October 1996 recommended the elimination of the $150,000 exemption, among others,and the addition of an "accredited investor" exemption. The viability of these proposals are currently being considered by a working group of Commission staff.Pending the outcome of their deliberations and consideration by the Commission, it is premature to eliminate the $150,000 exemption or add an accreditedinvestor exemption to the proposed Rule at this time.
4. Investment Clubs
One commenter questioned if there have been real or perceived issues in regard to investment clubs that have led the Commission to remove the exemption inparagraph 35(1)5 and clause 72(1)(d) of the Act, as the commenter believes the effect of the removal of the exemption will be to eliminate most investment clubs.
The Commission believes that most investment clubs purchase securities in the secondary market and not in the exempt market. Therefore the Commissiondisagrees with the commenter that the effect of the removal of the exemption will be to eliminate most investment clubs. The Commission previously consideredthe status of investment clubs for purposes of reliance on clause 72(1)(d) and determined that they should not be able to rely on the exemption. Section 3.4 of theproposed Rule gives effect to the Commission's decision by making the exemptions unavailable to investment clubs unless each member of the investment clubinvests $150,000 in the securities being purchased. The Commission does not propose to revisit its earlier decision.
5. Fair Value and Creditworthiness of Investor
One commenter suggested that the creditworthiness of an investor should not be relevant in determining the fair value of the liabilities being assumed by thatinvestor but rather should go to the bona fides of the transaction.
The Commission agrees with the comment and has made the changes proposed and has deleted the reference to the creditworthiness of the debtor.
6. Purchasing as Principal
One commenter noted that the exemptions based on purchasing securities having a value of $150,000 is limited to purchasers purchasing as principal andsuggested that it would be helpful to clarify that purchasing as agent is also acceptable.
The Commission disagrees with this comment. The exemption in clause 72(1)(d) refers to a "purchaser purchasing as principal". Consequently, the Commissiondoes not propose to add an interpretation that would be contrary to the clear words of the Act.
One commenter suggested that the exemption for trades in connection with amalgamations and arrangements should be available to limited partnerships.
The Commission agrees that there is no policy reason for not extending the exemption to limited partnerships and has made the change suggested in paragraph2.8(b) of the proposed Rule.
8. Double Convertibles
One commenter suggested that the exemption for a first trade in a convertible or an exchangeable security should be clarified so that the number of conversionsor exchanges that occur from the time of the original private placement until the ultimate resale is irrelevant.
The Commission agrees that the exemption is intended to permit multiple conversions or exchanges from the time of the original private placement until theultimate resale. In order to clarify that the exemption is not limited to two levels of conversion, the term "double convertible security" has been changed to"multiple convertible security" where ever it is used in the proposed Rule and the Commission has modified the wording in section 2.13 of the Rule.
B. Pooled Funds and Mutual Funds
One commenter commented on employer sponsored group savings plans. That commenter indicated that different industry participants take different views as tothe legality of offering pooled funds to various types of savings plans and that there is substantial uncertainty in the Ontario marketplace and in Canada generallyas to the rules that apply to various forms of employer sponsored group savings plans. As a result, the commenter indicated that there appears to be a substantialdiversity of practices in the marketplace, many of which are inconsistent with one another and many of which the commenter believes the Commission wouldconsider to be contrary to the letter and/or spirit of the existing or proposed legislative provisions or rules. Accordingly the commenter invites the Commission tooffer some guidance to industry participants on this issue.
The subject matter to which this comment relates is contained in Rule 32-503 Registration and Prospectus Exemption for Trades by Financial Intermediaries inMutual Fund Securities to Corporate Sponsored Plans, (1998), 21 OSCB 2315. As stated in the February 1998 Notice accompanying Rule 32-503, this area is acomplex one and the Commission does not want to approach it "piece meal". The Commission intends to address this area as its resources allow.
The commenter referred specifically to clause (g) of paragraph II.B.6 of Policy 6.1 and indicated that some persons have suggested that that section implies that aprivate placement prospectus exemption is available for group retirement savings plans and deferred profit sharing plan investments even though, in both cases,the investment decisions are typically made by the individual beneficiaries, acting independently, and they are accounts for which the individual beneficiary bearsthe investment risk. The commenter indicated that the proper interpretation of that provision is far from clear. The commenter noted that clause (g) of paragraphII.B.6 of Policy 6.1 is being replaced by section 3.3 of the proposed Rule. The commenter feels that the language in paragraph 3.3(b) is not sufficiently precise tobe helpful and submits that further refinement of section 3.3 as it relates to the clause 72(1)(d) exemption and the other group plan exemptions is required inorder to clarify which group plans and other collective entities may rely upon the various exemptions. The commenter requests that the Commission outline itsviews as to the circumstances, if any, in which it is appropriate to rely on the clause 72(1)(d) private placement exemption and/or other specific exemptions inconnection with the distribution of pooled funds to individual participants in various types of employer sponsored group savings plans.
Clause (g) of paragraph II.B.6 of Policy 6.1 purported to require a certificate in order to rely on the exemption in clause 72(1)(d) of the Act. The Commissionagrees that this was both confusing and of questionable legal effect and notes that the proposed Rule removes the need for a certificate to deal, in part, with theseissues.
In the Commission's view, section 3.3 of the proposed Rule does not require clarification. Typically, a group plan is not created or used primarily to purchasesecurities without a prospectus. The test in section 3.3 of the proposed Rule is conjunctive. Consequently, since paragraph 3.3(a) of the proposed Rule does notapply to the typical group plan, the restrictions in paragraph 3.3(b) of the proposed Rule do not apply either. In other words, paragraph 3.3(b) of the proposedRule only applies in a situation where the purchasing entity falls within the terms of paragraph 3.3(a) of the proposed Rule.
The commenter also commented on section 2.11 of the proposed Rule which provides a prospectus exemption for sales of securities of more than one issuer inamounts of $150,000 or over. The commenter indicates that the decision to exclude mutual funds and non-redeemable investment funds from the issuers that mayrely upon this exemptive relief is inappropriate. The commenter feels that the sophisticated purchaser rationale should be applied to investors in mutual funds andnon-redeemable investment funds.
Three other commenters also commented on the exclusion from section 2.11 of mutual funds and non-redeemable investment funds. One commenter noted thatapplying the $150,000 threshold to each collective investment vehicle rather than to all the assets deposited with a portfolio manager for management isinappropriate because the decision to invest in a particular collective investment vehicle based on the perceived expertise of the portfolio manager indicates thesophistication of the investor. Two of the commenters noted that the exclusion is because these matters will be dealt with in a separate instrument concerningmutual funds and non-redeemable investment funds. One commenter added that if this is not the case the rationale for the exclusion is not clear and encouragedthe Commission to proceed in a timely manner to release a rule for investment funds and mutual funds.
One commenter suggested that an exemption be created for collective investment vehicles which provides the relief contemplated by section 2.11 of the proposedRule and codifies additional tranche orders.
The Commission recognizes that relief would be necessary to facilitate the use of in-house pooled funds by portfolio advisers for discretionary managed accountclients where the exemption in clause 72(1)(d) is not available. As stated in the December 1997 Notice accompanying proposed Rule 45-504 Distributions ofSecurities to Portfolio Advisers on behalf of Fully Managed Accounts, the Commission continues to be of the view that the issues which arise in the context ofdeveloping an appropriate regulatory response to portfolio advisers who require more flexibility in the use of pooled funds to better serve their discretionarymanaged account clients should be the subject of a separate rule initiative.
With respect to the comment in the Companion Policy that security holders may not "tack" hold periods, one of the commenters indicated that when theSecurities Act was revised in 1978, the duration of the hold periods was based on the number of financial reports which the issuer of a private placement wouldhave to release before the securities could be sold into the marketplace. Consequently, the commenter noted that it should not matter who holds the securities forthe required period or how many holders there are.
Another commenter indicated that the amendments to the Securities Act that were proposed by the Commission in August 1984 recommended that hold periodsshould expire after the relevant hold period had passed from the date of the issue of the relevant security and should not be re-instituted should the holder of thesecurity trade the security under an exemption during the hold period. The commenter pointed out that the commentary in the 1984 amendments was to theeffect that "tacking" is not offensive from a policy perspective given the original rationale for the imposition of hold periods on exempt trades. The commenteralso referred to the commentary in the last paragraph of section IX.b - The Closed System in the Final Report of the Task Force on Small Business Financing.
Two commenters also felt that the position of the Commission that a seller is not permitted to "tack" on the amount of time the securities have been held in apreviously exempt trade by someone else is wrong both based upon the wording of the Act and on the policy rationale behind it.
One commenter felt that the Commission's view on tacking ignores the purpose of hold periods which are to ensure that the prospectus exemptions are not beingused to accomplish a "back-door underwriting". That commenter maintains that the purpose of the hold period is to ensure that an issuer is not using the privateplacement exemption to avoid the prospectus requirements, so it should not matter whether the original private placee has held the securities for the requisitehold period or whether the securities have been traded among sophisticated purchasers until such time as the hold period expires. In summary, there is no policyreason for a private placee of a private placee to be in a worse position than the original private placee.
Another commenter noted that in subsection 3.11(5) of the proposed Rule tacking is permitted for control block affiliates and wondered as to the rationale forextending tacking in that situation but not in other situations.
Based on the comments received, the Commission has reconsidered its position on tacking. The Commission agrees that the phrase "initial exempt trade" in thelegislation is more consistent with the view that tacking was intended than not. In addition, the Commission believes that permitting tacking is appropriate from apolicy point of view. Consequently, the hold periods in the proposed Rule have been amended so that they run from the date of the initial exempt trade and notfrom the date of the acquisition of the security by the seller (except in the context of distributions from a control block). In addition, the statement in section 2.5of the Policy that the Commission is of the view that, subject to certain exceptions, "tacking" of hold periods is not permitted has been deleted.
One commenter noted that, in considering the hold periods for multiple convertible securities, the Commission should consider the interpretation of the holdperiod provisions by the British Columbia, Alberta and Saskatchewan Securities Commissions that hold periods run from the date of distribution of the initialsecurity and not from the date of acquisition of an underlying security regardless of a subsequent exempt sale. The commenter noted that applying an Ontariointerpretation that is fundamentally different will not assist in harmonizing securities regulation in Canada.
The Commission agrees that it needs to harmonize its approach, particularly in light of the Applications Mutual Reliance Initiative. As noted above, based on thecomments received, the Commission has reconsidered its position on tacking. Consequently, the hold periods in the proposed Rule that relate to multipleconvertible securities and any underlying securities have been amended so that it is clear that they run from the date of the initial exempt trade of the multipleconvertible security.
D. Reporting Issuer Status Arising from Take-Over Bid Circulars
One of the commenters was of the view that section 2.2 of the Companion Policy, which states that filing a securities exchange take-over bid circular will notnecessarily result in reporting issuer status unless the circular complies with applicable requirements of the Act, conflicts with the Act, which according to thecommenter provides that an issuer becomes a reporting issuer when it files a securities exchange take-over bid circular.
It is the Commission's view that under subsection 1(1) of the Act, while an issuer becomes a reporting issuer when it files a securities exchange take-over bidcircular, an issuer has not filed a securities exchange take-over bid circular if it files a document that is not in substantial compliance with Item 15 of Form 32 ofthe Regulation. Consequently, the Commission disagrees with the comment that section 2.2 of the Companion Policy conflicts with the Act and does not proposeto make any changes to the policy in this regard.
Interested parties are invited to make written submissions with respect to the proposed Rule, Companion Policy and Forms. Submissions received by July 13,1998 will be considered.Submissions should be made to:
Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
A diskette containing an electronic copy of the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As the Act requiresthat a summary of written comments received during the comment period be published, confidentiality of submissions received cannot be maintained.Questions may be referred to:
Susan Wolburgh Jenah
Manager, Market Operations
Ontario Securities Commission
Legal Counsel, Market Operations
Ontario Securities Commission
Text of Proposed Rule, Companion Policy and Forms
The text of each of the proposed Rule, Companion Policy and Forms follows, together with footnotes that are not part of the proposed Rule, Companion Policyor Forms but have been included to provide background and explanation.
List of Commenters
1. Aur Resources Inc. by letter dated November 17, 1997.
Borden & Elliot writing on behalf of a client that wishes to remain anonymous by letter dated January 14, 1998.
Osler, Hoskin & Harcourt by letter dated January 29, 1998.
Paul Findlay, Barrister & Solicitor by letter dated February 11, 1998.
5. Smith Lyons by letter dated February 16, 1998.
6. Securities Law Subcommittee of the Canadian Bar Association by letter dated April 9, 1998.