BCN 2002/34 - Proposed Amendments to National Policy 11-201 Delivery of Documents by Electronic Means [BCN - Rescinded]

The Commission, together with other members of the Canadian Securities Administrators (CSA or we), is publishing for comment amendments to National Policy 11-201 Delivery of Documents by Electronic Means (NP 11-201).¹  

^{1In Quebec, NP 11-201 is entitled “Notice 11-201 relating to the delivery of documents by electronic means”.}

Introduction
There is a growing consensus that delivering proxy documents electronically and using proxy documents in electronic formats can make the proxy solicitation and voting process more efficient, cost-effective, and user-friendly. 

In September 1998, the International Organization of Securities Commissions’ report²     

^{2Securities Activity on the Internet - A report of the Technical Committee of the International Organisation of Securities Commissions - September 1998.}
 
on securities activity on the Internet recommended:

Subject to investor protection and confidentiality concerns, regulators should explore the possibilities under their company laws to enable issuers, transfer agents, depositories and broker-dealers to make full use of the Internet for the dissemination of voting information and in the proxy voting process as one means to facilitate full participation by shareholders in annual and other meetings of shareholders.

There also have been a number of developments in corporate and electronic commerce law that support the use of electronic delivery methods and documents in electronic format in the proxy solicitation and voting process.  Appendix A summarizes some of these developments.  We remind market participants that they are responsible for ensuring that their particular method of electronic delivery or use of a particular electronic format satisfies all requirements of corporate, electronic commerce or other legislation.

Purpose of the Proposed Amendments
NP 11-201 sets out general principles on how documents required to be delivered under Canadian securities law can be delivered electronically.  However, securities law also contains provisions relating to the proxy solicitation process that raise questions as to whether the electronic delivery of proxy documents is permitted, and whether proxy documents can be in electronic format. 

We identified two types of requirements in securities law that affect the electronic delivery of proxy documents and the use of electronic formats:

• requirements that a form of proxy or proxy be in written or printed form, and that a registered owner vote securities in accordance with written voting instructions (the in writing requirements); and
• requirements that a proxy be executed (the proxy execution requirements).

The purpose of the proposed amendments to NP 11-201 is to provide guidance on these issues.

Substance of the Amendments
Most of the substantive amendments are found in a new Part 4 entitled “Proxy Documents”.  Several consequential amendments are found in Part 1.

Proxy Delivery Requirements (section 4.1)
In most jurisdictions, securities laws no longer prescribe particular methods (such as pre-paid mail) of delivering proxy documents to registered shareholders.  With regard to beneficial shareholders, National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101) does not contain a prepaid mail requirement.  The companion policy to NI 54-101 states that a beneficial owner of securities may be sent security holder materials in electronic form as provided for by NP 11-201. 

In Writing Requirements (section 4.2)
Securities legislation contains definitions of  “form of proxy” and “proxy” that incorporate the concept of a written or printed form.3  
3Section 116 of the Securities Act (BC).  See also the securities legislation of Alberta, Ontario, Manitoba, and Saskatchewan. 

In addition, securities legislation also provides that a registrant or custodian may only vote shares that are registered in its name but not beneficially owned by it in accordance with any written voting instructions received from the beneficial owner.

The CSA is of the view that these provisions do not impede the use of forms of proxy, proxies and voting instructions in electronic format.  Electronic commerce legislation in force in a number of jurisdictions clarifies that a requirement to provide a document in writing can be satisfied by providing a document in electronic form if specified conditions are met.4  

4See Appendix A for examples of such legislation. In Alberta and Manitoba, similar electronic legislation is awaiting proclamation. 

However, market participants should take reasonable steps to ensure the integrity of the information contained in those electronic documents, and to enable the retention of a permanent, tangible record of the information for subsequent reference. Proposed section 4.2 provides guidance.

The Proxy Execution Requirements (section 4.3)
Securities legislation incorporates execution requirements in the definition of proxy.  These requirements do not impede the use of proxies in electronic format.  Electronic commerce legislation in force in a number of jurisdictions now clarify that electronic signatures are legally valid in those jurisdictions.  Commonly accepted legal definitions of “executed” and “signature” all suggest that there is more than one method of signing (and hence executing) a document.

The method of signing a proxy must allow the market participant to confirm that the signature is authentic.  Proposed section 4.3 provides guidance.

Request for Comments
We welcome comments on the proposed amendments.  Please submit your comments on or before October 8, 2002. You must send your submission in writing and you may send it by electronic mail. If you are not sending your submission by electronic mail, please include with it a diskette containing your comments (in Windows format, preferably Word).

Please send your submission only to the two addresses indicated below but address it to all of the CSA member commissions, as follows. Your submission will be forwarded to all CSA member commissions.

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
Newfoundland and Labrador Securities Commission
Registrar of Securities, Northwest Territories
Registrar of Securities, Yukon Territory
Registrar of Securities, Nunavut

c/o John Stevenson, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
e-mail: Jstevenson@osc.gov.on.ca

Denise Brosseau, Secretary
Commission des valeurs mobilières du Québec
Stock Exchange Tower
800 Victoria Square
P.O. Box 246, 22nd Floor
Montréal, Québec H4Z 1G3
e-mail: consultation-en-cours@cvmq.com

Questions
Please refer your questions to any of:

Veronica Armstrong
Senior Policy Advisor
British Columbia Securities Commission
(604) 899-6738 or (800) 373-6393 (in B.C.)
E-mail: varmstrong@bcsc.bc.ca

Marsha Manolescu
Senior Legal Counsel
Alberta Securities Commission
(780) 422-1914
E-mail: marsha.manolescu@seccom.ab.ca

Barbara Shourounis
Director
Saskatchewan Securities Commission
(306) 787-5842
E-mail: bshourounis@ssc.gov.sk.ca

Sylvie Lalonde
Policy Advisor
Commission des valeurs mobilières du Québec
(514) 940-2150
E-mail: sylvie.lalonde@cvmq.com

Randee Pavalow
Director, Capital Markets
Ontario Securities Commission
(416) 593-8257
E-mail: rpavalow@osc.gov.on.ca

Winnie Sanjoto
Legal Counsel, Corporate Finance
Ontario Securities Commission
(416) 593-8119
E-mail: wsanjoto@osc.gov.on.ca

Chris Besko
Legal Counsel, Deputy Director
The Manitoba Securities Commission
(204) 945-2561
E-mail: cbesko@gov.mb.ca

August 8, 2002

Douglas M. Hyndman
Chair

Ref:
NP 11-201
Section 116 Securities Act
NI 54-101

This Notice may refer to other documents. These documents can be found at the BC Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.