NIN 95/10 - Proposed Amendments to the Securities Act, Securities Regulation and Vancouver Stock Exchange Act [NIN - Rescinded]

The Commission is publishing for comment, on behalf of the Ministry of Finance and Corporate Relations, a package of proposed amendments to the Securities Act, Securities Regulation and the Vancouver Stock Exchange Act for introduction in the Spring 1995 legislative session. The Commission prepared and published, on October 7, 1994, a first set of proposed amendments to the Securities Act (see NIN#94/14), which implemented part of the Government's response to the Matkin Report, and on November 25, 1995, a second set of amendments to the Securities Act that were unrelated to the Government's response to the Matkin Report (see NIN#94/28).

This third set of amendments is part of the Government's response to the Matkin Report. The amendments were prepared by the Policy and Legislation Branch of the Ministry of Finance and Corporate Relations. Any questions about the proposed amendments should be directed to Carol Anne Rolf, Acting Director, Policy and Legislation Branch at 387-1269.

The Commission strongly encourages comment on the proposed amendments.

DATED at Vancouver, British Columbia, on February 9, 1995.

Douglas M. Hyndman
Chair

REF: NIN#94/14
NIN#94/28



Summary of Legislative Initiatives

This is the third in a series of proposed legislative amendments to implement the Government's response to the Matkin Report as announced by the Honourable Elizabeth Cull, Minister of Finance and Corporate Relations.

Proposed Amendments to the Securities Act

The proposed amendments to the Securities Act are intended to:

increase the number of commissioners and create a position of second vice-Chair (see sections 4(2), (4), (7) and (9));

provide for the establishment of a Securities Policy Advisory Committee (see section 8.1);

create a statutory civil cause of action for misrepresentations in press releases and letters to shareholders (see section 115.1);

enable the Commission to apply to the Supreme Court for an order for disgorgement (see section 144.3); and

provide the Commission with rule-making authority (see section 159.1). A proposed new regulation sets out the requirements (including ministerial approval, and public notice and consultation), which the Commission must comply with prior to the exercise of its new rule-making powers.


Proposed Amendments to the Vancouver Stock Exchange Act

The proposed amendments to the Vancouver Stock Exchange Act are intended to:

provide that the Vancouver Stock Exchange Board of Governors (VSE Board) be comprised of 21 members, 7 of whom would be public governors appointed by the Lieutenant Governor in Council;

require that the VSE Board elect one of the public governors as chair; and

remove the requirement that one public governor be a member in good standing of the Law Society of British Columbia and that one public governor be a member in good standing of the Institute of Chartered Accountants of British Columbia.

Request for Comments

Written comments should be directed by March 24, 1995 to:

Carol Anne Rolf
A/Director
Policy and Legislation Branch
Ministry of Finance and Corporate Relations
Room 201, 553 Superior Street
Victoria, British Columbia
V8V 1X4

Comment letters submitted in response to Requests for Comment are placed on the public file and form part of the public record, unless confidentiality is requested. Although comment letters requesting confidentiality will not be placed on the public file, freedom of information legislation may require the Ministry of Finance and Corporate Relations to make comment letters available. Persons submitting comment letters should therefore be aware that the press and members of the public may be able to obtain access to any comment letter.


Explanatory Notes

Section 4(2)

This proposed amendment increases the number of members of the commission from 9 to 11.

Section 4(4)

This proposed amendment provides for a second vice chair.

Section 4(7)

Consequential to providing for two vice chairs.

Section 4(9)

Consequential to providing for two vice chairs.

Section 6(1)

Consequential to providing for two vice chairs.

Section 8.1

This proposed amendment requires the BCSC to establish a Securities Policy Advisory Committee.


Securities Act
re: Commission, Securities Policy Advisory Committee, Civil Remedies and Disgorgement


Commission

4. (2) The commission shall consist of not more than ^11 members appointed by the Lieutenant Governor in Council.

4. (4) The Lieutenant Governor in Council shall designate one member of the commission to be chair and chief executive officer of the commission, and may designate ^up to two vice chairs of the commission from among the members of the commission.

4. (7) When the chair is absent or incapable of acting, the powers and duties of the chair shall be exercised and performed by

(a) ^a vice chair, or
(b) where there is no vice chair, a person appointed by the minister.

4. (9) The chair, a vice chair or any other member of the commission may exercise the powers and shall perform the duties delegated to him by the commission under section 6.


Delegation

6. (1) Subject to subsection (2), the commission may delegate its powers and duties under this Act to the chair, a vice chair, a member of the commission or the Executive Director.


Securities policy advisory committee

8.1The Chair of the commission shall appoint a Securities Policy Advisory Committee.


Section 115.1(1)

This proposed amendment defines press release and letter to shareholders for the purpose of attaching statutory civil liability to misrepresentations made in these documents.

Section 115.1(2)

This proposed amendment extends the statutory right of action and deemed reliance which apply to misrepresentations made in a prospectus (see section 114) to misrepresentations made in a press release and to misrepresentations made in letters to shareholders.

Section 115.1(3)

This proposed amendment provides the defence that the plaintiff had knowledge of the misrepresentation made in a press release or letter to shareholders and was not misled.

Section 115.1(4)

This proposed amendment provides a due diligence defence to persons other than the issuer for misrepresentations made in a press release or letter to shareholders. The person using this defence must give reasonable general notice that the misrepresentation was made (section 115.1(4)(a)).


Liability for misrepresentation in press release or letter to shareholder

115.1(1) In this section

(a) "press release" means a statement issued by or on behalf of an issuer that is disseminated to the public, whether or not through the media.
(b) "letter to shareholders" means a statement made by or on behalf of an issuer and published or distributed to those shareholders who were the shareholders of record at the time of its release.

(2) Where a press release or letter to shareholders issued by or on behalf of an issuer contains a misrepresentation, a person who purchased or sold a security of the issuer after the misrepresentation was made and before the dissemination to the public of a correction of the misrepresentation, if any

(a) shall be deemed to have relied on the misrepresentation if it was a misrepresentation at the time of the purchase or sale, and
(b) has a right of action for damages against
(i) the issuer,
(ii) every officer of the issuer who signed the press release or letter to shareholder, and
(iii) every director of the issuer at the time the press release was issued or the letter to shareholders was published or distributed.

(3) No person is liable under subsection (2) if that person proves that the person exercising the right of action had knowledge of the misrepresentation.

(4) Except for the issuer, no person is liable under subsection (2) if that person proves that

(a) the press release was issued or the letter to shareholders was distributed without his or her knowledge or consent and that, on becoming aware of the misrepresentation, the person gave, as soon as possible, reasonable general notice that the misrepresentation had been made,

(b) with respect to any part of the press release or letter to shareholders purporting
(i) to be made on the authority of an expert, or

the person had no reasonable grounds to believe and did not believe that


Section 115.1(5)

This proposed amendment provides that the defendant is not liable for damages which he or she proves were not caused by the effect on the market of the misrepresentation. As is the case with section 114 the onus of proof is on the defendant.

Section 115.1(6)

This proposed amendment specifies the joint and several liability of defendants similar to section 114.

Section 115.1(7)

This proposed amendment enables a defendant who has paid all damages for a group of jointly and severally liable defendants to recover damages attributable to the others. (The same provision applies in section 114.)


(iii) there had been a misrepresentation, or
(iv) the relevant part of the press release or letter to shareholder
(A) did not fairly represent the report, opinion or statement of the expert, or
(B) was not a fair copy of, or extract from the report, opinion or statement of the expert,

(c) with respect to any part of a press release or letter to shareholders not purporting
(i) to be made on the authority of an expert, and

he or she
(iii) conducted a reasonable investigation to provide reasonable grounds for the belief that there had been no misrepresentation, and
(iv) did not believe there had been a misrepresentation.

(d) with respect to a false statement,
(i) purporting to be a statement made by an official person, or

it was a correct and fair representation of the statement or copy of, or extract from, the document, and the person had reasonable grounds to believe and did believe that the statement was true.

(5) In an action for damages under subsection (2), the defendant is not liable for all or any part of the damages that he or she proves does not represent the depreciation or appreciation in value of the security resulting from the misrepresentation.

(6) The liability of all persons referred to in subsection (2)(b) is joint and several as between themselves with respect to the same cause of action.

(7) A defendant who is found liable to pay a sum in damages may recover a contribution, in whole or in part, from a person who is jointly and severally liable under this section to make the same payment in the same cause of action unless, in all the circumstances of the case, the court is satisfied that it would not be just and equitable.


Section 115.1(8)

This proposed amendment provides a statutory limitation of damages to total loss sustained. Total loss sustained is defined in subsection 115.1(9).

Section 115.1(9)

This proposed amendment defines total loss sustained based on the average trading price in the 20 days following the date of dissemination to the public of the correction. This computation is intended to reflect the lag in the market's response to the correction of the misrepresentation.

Section 115.1(10)

This proposed amendment clarifies that the statutory rights of action conferred in this section are in addition to rights a buyer or seller may have at common law or otherwise.

Section 116

Consequential to providing new 115.1

Section 144.3

This proposed amendment enables the Commission to apply to Supreme Court for an order directing a person to disgorge any funds obtained or losses avoided as a result of a contravention of a decision, the Act, the regulation or a rule made under proposed new section 159.1. Subsection (2) provides direction on the potential application of disgorged amounts.


(8) In no case shall the amount recoverable by a plaintiff under this section exceed the total loss sustained as a purchaser or vendor.

(9) In subsection (8), "total loss sustained" means,

(a) where the plaintiff is a purchaser, the price paid by the purchaser for the security less the average market price of the security in the twenty trading days following the date of the dissemination to the public of the correction of the misrepresentation; and
(b) where the plaintiff is a vendor, the average market price of the security in the twenty days following the date of the dissemination to the public of the correction of the misrepresentation, less the price the seller received for the security.

(10) The right of action for damages conferred by this section is in addition to and not in derogation from any other right the purchaser or vendor may have.


Standard of reasonableness

116. In determining what is a reasonable investigation or what are reasonable grounds for belief for the purposes of sections 114^, 115 and 115.1, the standard of reasonableness shall be that required of a prudent person in the circumstances of the particular case.


Disgorgement

144.3 (1) Where the commission, after a hearing,

(a) determines that a person has contravened
(i) a provision of this Act, the regulations, or the rules made under section 159.1, or
(ii) a decision, whether or not the decision has been filed under section 144.2, and
(b) considers it to be in the public interest

the commission may apply to the Supreme Court for an order that the person pay to a trustee appointed by the court any funds obtained or losses avoided as a result of the contravention of the decision or provision.

(2) The court may direct that the funds paid under subsection (1) be paid out by the trustee to persons who have suffered loss as a result of the contravention, or where, in the opinion of the court, this is not practical, to one or more of the following:

(a) a class action fund [for securities actions] as may be established pursuant to Class Proceedings legislation enacted in the province;
(b) the commission's Special Account for the purpose of the promotion of knowledge of participants in the securities market of the legal, regulatory and ethical standards that govern the operation of the securities market in British Columbia;
(d) the Minister of Finance for payment into the consolidated revenue fund.

(3) The commission may make recommendations to the court regarding the application of the amounts referred to in subsection (4).


Section 6(1)

This proposed amendment will prevent the Commission from delegating its power to make binding rules.

Section 18

This proposed amendment will correct an existing drafting error to avoid confusion between Commission rules and regulations made by the Lieutenant Governor in Council (LGC).

Section 159(1)

Proposed amendments to paragraph (26), and proposed new paragraph (26.1), are required to separate powers which should remain solely with the LGC from powers which can be shared with the Commission. Similar modifications to other specific heads of power in section 159(1) may be required to enable the exercise of the appropriate powers by the Commission.

The proposed new paragraph (44) will give the LGC the power to prescribe requirements (such as ministerial approval, and notice, consultation and publication requirements set out in the draft regulation attached) with which the Commission must comply to exercise its rule-making powers.

The proposed new paragraph (45) will give the LGC direct power to amend or repeal a Commission rule.

Section 159.1

The proposed amendment will give the Commission the power to prescribe rules in the same areas as the LGC with certain specified exceptions. In general, the proposed exceptions are either powers which the LGC can already delegate to the Commission, or deal with functions which could create a perceived conflict of interest if the functions were to be exercised by the Commission. Depending on the results of further review, the list of enumerated exemptions may be expanded to include paragraphs (29), (39), (41.1) and others.

The proposed subsections (1)(b), (2) and (3) will incorporate the Commission's current powers to make regulations into its broader rule-making power, and will deem current Commission regulations to be rules.



Securities Act
re: Rule-Making


Delegation

6. (1) Subject to subsections (2) and (2.1), the commission may delegate its powers and duties under this Act, the regulations or another enactment to the chair, a vice chair, a member of the commission or the executive director.

(2.1) The commission must not delegate a power referred to in section 159.1.


Audits of members of stock exchanges and self regulatory bodies

18. (4) A bylaw, rule or regulatory instrument referred to in subsection (3)...


Regulations

159. (1) [Replace "159 (1)" with "159".]

(26) prescribing the principles for determining the market value, the market price or closing price of a security^.

(26.1) authorizing the commission to make a determination of the market value, market price or closing price of a security on the basis of prescribed principles.

(44) respecting the requirements for the exercise of the commission's powers to make rules under section 159.1.

(45) amending or repealing any rule prescribed by the commission under section 159.1.

[Move 159 (2) and (3) to section 159.1.]


Commission may make rules

159.1(1) The commission may, by complying with the prescribed requirements, prescribe rules respecting trading in securities or the securities industry and for the purpose of regulating trading in securities or the securities industry, including rules


Section 159.2

The proposed amendments will provide that Commission rules have the same force and effect as regulations of the LGC, will make LGC regulations prevail in the event of a conflict, will enable the LGC to deem existing regulations to be rules, and will ensure that the other provisions of the Act can accommodate the existence of Commission rules. An effect of this provision is that the Regulations Act would apply to rules prescribed by the Commission, and the rules would be deposited with the Registrar of Regulations and published in the British Columbia Gazette and in the Consolidated Regulations of British Columbia.

Section 159.3

The proposed amendments clarify that both LGC regulations and Commission rules may apply only to particular persons or classes of persons, and provide that the regulation or rule can authorize the granting of exceptions.

(a) respecting the matters referred to in section 159 [now 159(1)], other than the matters referred to in paragraphs (3), (4), (5), (26.1 [new]), (27), (27.1), (28), (35), (35.1), (36), (37), (38), (42), (43), (44) and (45), and
(b)

(2) [incorporate 159 (3).]

(3) Any regulations enacted by the commission under section 159 (2) before the coming into force of this section are deemed to be rules.


Nature and effect of rules by commission

159.2(1) A rule prescribed by the commission under section 159.1 has the same force and effect as a regulation made by the Lieutenant Governor in Council under section 159, and is a regulation within the meaning of the Regulations Act.

(2) If a rule prescribed by the commission conflicts with a regulation made by the Lieutenant Governor in Council under section 159, the regulation prevails.

(3) The Lieutenant Governor in Council may at any time, by order in council, deem any regulation made pursuant to section 159 in force at that time to thereafter be a rule of the commission.

(4) Every reference to "regulation" in this Act, the regulations or the rules, except the references to "regulation" in sections 138, 159, 159.1 and this section, is deemed to include both the regulations and the rules, unless the context otherwise requires.


Scope and application of regulations and rules

159.3(1) A regulation or a rule may be of general or specific application.

(2) A regulation or rule may authorize the commission or the executive director to grant, in whole or in part, and subject to conditions or restrictions, an exemption to it.


Section 159.4

The proposed new section clarifies the Commission's existing authority to issue policy statements and further clarifies the effect of policy statements.


Policy statements

159.4(1) In addition to its power to make rules under section 159.1, the commission may issue policy statements outlining policies to facilitate the exercise of its powers and the performance of its duties under this Act, the regulations or the rules.

(2) A policy statement issued under subsection (1) is not a regulation within the meaning of this Act or the Regulations Act, and may be subject to the commission's interpretation and discretion.

(3) For greater certainty, a policy statement issued by the commission prior to the coming into force of this section is deemed to be a policy statement within the meaning of this section.


The Commission will be required to comply with prescribed requirements prior to the exercise of the new rule-making powers given it under the proposed section 159.1. These requirements (including ministerial approval, and public notice and consultation) are set out in this proposed regulation.


PROPOSED REGULATION PRESCRIBING PROCEDURES FOR RULE-MAKING BY COMMISSION:

(1) The commission must obtain the approval of the Minister to any proposed rule before publishing the proposed rule under subsection (4).

(2) The Minister may, within 60 days of receiving written notification from the commission of its intention to propose a rule, together with a draft of the proposed rule and a written explanation of the need for and expected effect of the proposed rule, approve or reject the proposed rule, or may return it to the commission for further consideration.

(3) If the Minister does not reject, approve or return the proposed rule in accordance with the time limit stated in subsection (2), the proposed rule is deemed to have been approved by the Minister.

(4) The commission must publish in the British Columbia Gazette [national financial newspaper, local daily, Queen's Printer Electronic Bulletin Board] and in the Weekly Summary the wording of any rule which it proposes to make, together with:

(a) a reference to the authority under which the rule is proposed; and
(b) a statement of the substance and purpose of the proposed rule.

(5) Upon publication of the proposed rule, the commission shall give interested parties at least 60 [30, 45] days in which to make written representations regarding the proposed rule.

(6) The commission does not have to comply with subsection (4) and (5) if the commission considers it necessary and in the public interest to enact the proposed rule without delay, and the Minister, in accordance with subsections (2) and (3), approves both the proposed rule and the non-compliance with subsection (4) and (5).

(7) A rule enacted by the commission to which subsection (6) applies is revoked on the 180th day after it comes into force.

(8) If a proposed rule changes in a material respect following publication under subsection (4), the commission must publish in the British Columbia Gazette [and others] and in the Weekly Summary the wording of the proposed amended rule, together with an explanation of reasons for the amendment, and the commission must give interested parties at least 60 [30, 45] days in which to make written representations regarding the proposed amended rule.


(9) The commission must publish [in the Gazette (and others) and] in the Weekly Summary, as soon as practicable, a rule made by it, together with:

(a) notice of the effective date of the rule;
(b) a reference to the authority under which the rule is proposed; and
(c) a statement of the substance and purpose of the rule.


Section 3(1)

This proposed amendment provides for the Vancouver Stock Exchange Board of Governors to be comprised of 21 members, including the VSE President.

Section 3(1.1)

This proposed amendment requires the VSE Board of Governors to elect a public governor as Chair of the VSE.

Section 3(2)

This proposed amendment provides for 7 of the members of the VSE Board of Governors to be public governors.

Section 3(2.1)

This proposed amendment replaces the current provisions which provide for both appointed and elected public governors with a requirement that all public governors be appointed by the Lieutenant Governor in Council.

Section 3(2.2)

Consequential to repeal of provision for elected Public Governors.

Section 3(2.3)

Consequential to a new (non-statutory) nomination process for public governors, this proposed amendment repeals a requirement that one public governor be a member in good standing of the Law Society of British Columbia and another public governor be a member in good standing of the Institute of Chartered Accountants of British Columbia.

Section 3(2.4)

Consequential to repeal of provision for elected Public Governors.

Section 3(2.5)

Consequential to repeal of provision for elected Public Governors.



Vancouver Stock Exchange Act


Officers of corporation

3(1) There shall be a Board of Governors who consist of:

(a) a Chair, a Vice-Chair, an Honourary Secretary and an Honourary Treasurer,
(b) the President of the Corporation, and
(c) 16 Directors.

3(1.1) The Governors shall elect the Chair from among the Public Governors appointed under subsection (2.1).

3(2) Seven of the Governors referred to in subsection (1) shall be Public Governors.

3(2.1) The Lieutenant Governor in Council shall appoint the seven Public Governors referred to in subsection (2).

3(2.2) The term of office of a Public Governor appointed ^under subsection (2.1) expires on

(a) the date of the second annual general meeting to follow the appointment^ if^ a term of that length is specifically provided for in the appointment, or^
(b) if no term is specifically provided for in the appointment, the date of the first annual meeting to follow the appointment.

3(2.3)Repeal.

3(2.4) A person who is or has been a Public Governor is eligible for reappointment^ for successive or additional terms but is not eligible to be a Public Governor for more than 6 years in total.

3(2.5) A person is not qualified to be a Public Governor unless the person

(a) is, at the time of the person's appointment ^as a Public Governor, independent of the Corporation and its members, and
(b) was independent of the corporation and its members throughout at least the 24 months immediately preceding the appointment.


Section 3(2.8)

Consequential to repeal of provision for elected Public Governors.

Section 3(2.91)

Consequential to repeal of provision for elected Public Governors and to deletion of reference to statutory "professional" Public Governors in section 3(2.3).

Section 3(2.92)

Consequential to repeal of provision for elected public governors.


3(2.8) A Public Governor who becomes aware that he or she is not qualified to be a Public Governor shall^ promptly

(a) ^cease to be involved in any proceedings of the Board of Governors, and
(b) ^advise the minister responsible for the administration of the Securities Act of the disqualification^.

3(2.91) If a Public Governor ^ceases, for any reason to be a Public Governor before the end of the term for which that person was appointed , the Lieutenant Governor in Council^ may appoint a replacement Public Governor to hold office for the unexpired portion of the term^.

3(2.92)Repeal.