BOR 87/30 - A Policy of the Montreal Exchange on Small Shareholder Selling and Purchase Arrangements [Rescinded]
| Published Date: | 1987-06-12 |
|---|---|
| Effective Date: | 1987-05-26 |
| Rescinded Date: | 1997-12-01 |
IN THE MATTER OF THE SECURITIES ACT AND
IN THE MATTER OF A POLICY OF THE MONTREAL EXCHANGE ON SMALL SHAREHOLDER SELLING AND PURCHASE ARRANGEMENTS
EXEMPTION ORDER UNDER SECTION 33
UPON the application of the Montreal Exchange (the "Exchange") to the Superintendent for an order pursuant to Section 33 of the Securities Act, S.B.C. 1985 c.83 (the "Act") with respect to trades made under small shareholder selling arrangements ("Selling Arrangements") and/or small shareholder purchase arrangements ("Purchase Arrangements") (collectively, the "Arrangements") by companies listed on the Exchange ("Listed Companies") which participate in such Arrangements.
AND UPON it being represented to the Superintendent that:
1. The Exchange adopted on May 26, 1987 Policy 1-9 in respect of "Small Shareholder Selling and Purchase Arrangements" (the "Policy"), a copy of which is attached hereto as Schedule "A";
2. Pursuant to the Policy, Listed Companies are directed to request odd lot holders wishing to participate in Selling Arrangements and/or Purchase Arrangements to either:
(i) place orders under the Arrangements with any member firm; or
(ii) transmit orders under the Arrangements directly to the Listed Company or an agent (such as a member firm or transfer agent) designated by it;
3. Only persons who are holders of less than one board lot as defined in the General By-law of the Exchange are eligible to participate in the Arrangements;
4. The procedure described in the Policy constitutes the exclusive method by which a Listed Company may seek the assistance of a member firm either to solicit odd lots for sale, or to acquire additional shares to make up a board lot, through the facilities of the Exchange; and
5. The Policy enables Listed Companies to reduce the number of holders of odd lots through participation in the Arrangements described in the said Policy and reduces the commission rates otherwise payable by odd lot holders on the purchase or sale of good lots;
AND UPON it appearing to the Superintendent that the solicitation by Listed Companies of odd lot holders with respect to participation in the aforesaid Arrangements and all acts, negotiations or conduct engaged in by the Listed Companies or their transfer agents in furtherance of odd lot holder participation in the Arrangements and in accordance with the provisions of the Policy including, but not restricted to, the receipt by Listed Companies or their transfer agents of orders to buy or sell securities on behalf of odd lot holders, constitute trades within the meaning of the Act;
AND UPON The Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS RULED pursuant to Section 33 of the Act that the solicitation by Listed Companies of odd lot holders with respect to participation in the aforesaid Arrangements and all acts, negotiations or conduct engaged in by Listed Companies or their transfer agents in furtherance of odd lot holder participation in the Arrangements and in accordance with the provisions of the Policy including, but not restricted to, the receipt by Listed Companies or their transfer agents of orders to buy or sell securities on behalf of odd lot holders, are not subject to Section 20 of the Act;
AND IT IS FURTHER RULED that this ruling shall be effective as and from the 26th day of May, 1987.
DATED at Vancouver, British Columbia, this 11th day of June, 1987.
Neil de Gelder
Superintendent of Brokers
SCHEDULE "A"
POLICY I-9
SMALL SHAREHOLDER SELLING AND PURCHASE ARRANGEMENTS
This Policy applies to listed companies interested in a structured, standardized procedure to reduce the number of its holders of very small lots of shares.
This Policy also applies to members firms of the Exchange either engaged as agent by a listed company pursuant to this Policy, or acting on behalf of eligible clients which are interested in benefiting from the participation in a Small Shareholder Selling or Purchase Arrangement (an "Arrangement") offered by a listed company pursuant to this Policy.
Introduction
For many listed companies, the number of shareholders holding a very small number of shares has been increasing very rapidly in recent years. This is, in part, the result of the success of various programs initiated by listed companies or outside parties and even the Exchange to increase the public's awareness about the company or about securities markets in general. Furthermore, the odd lot holders will often decide to maintain their shares in small lots because the relative costs associated with the disposition or purchase of small lots are extremely high, principally by reason of the minimum commissions charged by brokerage firms or other intermediaries.
Since there did not exist structured programs to facilitate procedures and reduce costs associated with acquiring additional small numbers of shares to even out the holdings of a shareholder to a regular board lot (definition at item 6 below) or dispose of such small lot of shares, the numbers of odd lot holders continued to grow. This increase in the number of odd lot holders may have become a significant problem for listed companies in view of the expenses associated with printing and distribution materials to shareholders required by law or otherwise or for payments of dividends.
A procedure that enables odd lot holders to sell their shares, or to acquire a sufficient number of shares to constitute a board lot, without incurring such cost would benefit the odd lot holders as well as the listed companies. In addition, member firms benefit by a reduction in the administration costs of distributing shareholder materials to odd lot holder clients with shares registered in nominee form.
The procedure described in this Policy is intended to satisfy these objectives at a reasonable cost to listed companies. It is consistent with the objective of the Exchange to enhance the marketability of small holdings. This objective was also advanced by the initiative of this Exchange to eliminate the premium or discount formerly charged for the purchase and sale of odd lots in the case of odd lot market and limit orders sent through MORRE (the first Canadian electronic order routing and execution system, which also guarantees best price - August 17, 1984).
The advantages of a procedure such as set out below result from the simple fact that there exists a standardized procedure which is well-known by all involved parties. If many different procedures existed, or were used together or in sequence, the result could be general confusion in the procedures to be followed and in settlement of trades. Therefore, the Exchange requires that the procedure described below be followed where a listed company seeks the assistance of one or more members of the Exchange to defray the commissions payable for the acquisition or sale of odd lots on the Exchange to liquidate a position or constitute a board lot.
Procedures applicable to Small Shareholder Selling and Purchase Arrangements
1. General
a) - Small Shareholder
Selling Arrangement
(a "Selling Arrangement")
Under a Selling Arrangement, a listed company agrees to pay a fee per odd lot (or eligible lot [see 6 below]) account to member firms to sell shares on behalf of odd lot (or eligible lot) holders.
- Small Shareholder
Purchase Arrangement
(a "Purchase Arrangement")
Under a Purchase Arrangement, a list-ed company agrees to pay a fee per odd lot (or eligible lot) account to member firms to purchase a sufficient number of shares on behalf of odd lot (or eligible lot) holders to constitute a board lot.
b) The listed company shall request odd lot (or eligible lot) holders wishing to take advantage of an Arrangement to either:
Option 1: place orders under the Arrangement with any member firm of the Exchange; or
Note: If option 1 is selected, a member firm shall be appointed as Manager of the Arrangement and shall be responsible for maintaining records of transactions and remitting the fees payable to other members.
Option 2: transmit orders under the Arrangement directly to the listed company or an agent (such as a member broker, a transfer agent, or other) designated by it.
Special procedures applicable to options 1 and 2 are set out in items 3. and 4. below.
2. Trading Odd Lots
A selling Arrangement may be carried out in one of two ways: i) the shares tendered by odd lot (or eligible lot) holders must be aggregated into board lots and sold promptly by a member on the Exchange; or ii) the shares must be sold promptly in the form of odd lots through The Montreal Exchange Order Routing and Execution System ("MORRE"). In the event that odd lots are sold through MORRE, the responsible specialist will aggregate odd lots for resale in the normal course of his activities.
Similarly, under a Purchase Arrangement a member must promptly acquire a sufficient number of shares to increase an odd lot holder's holdings to a full board lot (or eligible lot) either i) by purchases by the member on the Exchange; or ii) through MORRE.
3. Requirements Applicable to Arrangements through Members
The following applies to Arrangements where odd lot (or eligible lot) holders are to place orders with any member firm of the Exchange (option 1 under item 1. b).
a) Members' records of orders
It is anticipated that many odd lot (or eligible lot) holders will not currently have an account with a member firm. In order to simplify the administration of an Arrangement being affected through by member firms, new account forms are not required to be completed for odd lot holders and transactions made pursuant to an Arrangement may be affected through an omnibus account. The member must maintain proper records of orders as required by article 7467 of the Rules.
b) Attestation of Members
If required by the listed company members selling odd lots on behalf of clients under a Selling Arrangement, or purchasing shares under a Purchase Arrangement, shall prepare a signed statement that to the best of the knowledge of the representative of the member, the shares of each named beneficial owner sold under a Selling Arrangement constitute all of the shares of that class owned by such beneficial owner and that the number of shares purchased under a Purchase Arrangement for each named beneficial owner is the number of shares required to increase each beneficial owner's holdings to the level of one board lot. The member shall keep copy of each such statement in its files for inspection by the Exchange. Members are not required to disclose the names of their clients to the Manager of an Arrangement or the listed com-pany.
c) Shares held in nominee name by members
In the event that odd lots (or eligible lots) are held in the name of a member on behalf of a customer who wishes to sell his shares pursuant to a Selling Arrangement, the member shall either i) sell such shares on behalf of the customer pursuant to the Arrangement, ii) provide the customer with deliverable securities along with a certificate stating that, to the best of the member's knowledge, the customer held a stated number of shares as of the record date of the Arrangement in order to permit the customer to tender such securities to another member, or iii) tender such shares to another member who is willing to sell the shares pursuant to the Arrangement on behalf of the customer.
d) Member Managers
The member appointed as Manager of an Arrangement in accordance with option 1 set out in item 1. b), shall maintain records of the transactions effected by members pursuant to the Arrangement. Members shall report such transactions to the Manager on a weekly basis. The Manager shall remit the amount offered by the listed company per odd lot (or eligible lot) account promptly after the receipt of each weekly report. The amount receivable by each member is required to be used, in its entirety, to replace or reduce the normal brokerage commissions otherwise payable by odd lot (or eligible lot) holders.
e) Price
The price received or to be paid for an odd lot shall be the market price at which the trade is executed by the member. If the shares of an odd lot (or eligible lot) holder are sold or purchased as part of more than one board lot and different prices are received or paid, the amount remitted to the customer, or paid by the customer, shall be the average price and the confirmation must disclose that an average price has been used and must list the prices at which the trades were made.
The Exchange anticipates that the member appointed as Manager of an Arrangement will advise the listed company concerning a reasonable fee payable per odd lot (or eligible Lot) account.
4. Requirements Applicable to Arrangements through the Company
The following applies to Arrangements where odd lot holders are to place orders through the listed company or an agent designed by it (option 2 under item 1. b).
a) Orders sent to members
The listed company or its agent shall send orders received pursuant to the Arrangement to one or more members of the Exchange for execution forthwith after clearance of such orders for trading. Orders received and cleared for execution shall be placed with the member no later than 12:00 p.m. on the next business day for execution on the Exchange. Orders may be aggregated, but not netted (purchase orders against sell orders), by the listed company or its agent.
b) Execution of orders
The member shall execute aggregated buy or sell orders as soon as possible, subject to its discretion in fulfilling its obligation to obtain the best available price for the customer and to avoid any undue impact on the market price.
c) Price
The price received or to be paid for an odd lot (or eligible lot) shall be the average price received on all orders placed with the member under the Arrangement for execution on a given day, regardless of when any of such orders are executed.
d) Additional information to include in the disclosure document
In addition to the information required by item 8, the disclosure document shall contain i) a statement that the price received or to be paid for an odd lot (or eligible lot) will be the average price received on all orders placed with the member under the Arrangement for execution on a given day, regardless of when any of such orders are executed, ii) an estimate of the period of time required for mailing and clearing an order, and iii) a statement that the market price of the stock may change during such period.
5. Obligations to Odd Lot Holders
A member must obtain the best price available for its customer [the odd lot (or eligible lot) holder] in executing trades pursuant to an Arrangement. Notwithstanding any financial arrangement with the listed company, members must satisfy their fiduciary duty to odd lot (or eligible lot) holders in accordance with this Policy and the law. The listed company shall not, directly or indirectly, influence the time, price, amount or manner of sales or purchases of odd lots.
Subject to any agreement to the contrary, members may acquire or sell odd lots in principal transactions in accordance with article 6481 of the Rules of the Exchange. Members may not be a prominent influence in the market for the shares at a time when a principal transaction is proposed to be executed.
6. Shareholders Eligible to Participate
Only persons who are holders of less than one board lot as defined in article 6401 of the Rules of the Exchange are eligible to participate in either type of Arrangement or, the listed company may fix the maximum lot eligible ("eligible lot") to a Small Shareholder Selling and Purchase Arrangement under this Policy to any number of shares which is less than one board lot. In such cases, the fixed lot must be clearly stipulated in all documentation prepared in connection with a Small Shareholder Selling and Purchase Arrangement under this Policy. The determination as to whether a person is the holder of an odd lot (or eligible lot) shall be made as of a record date established by the listed company. The record date must be prior to the public announcement of the Arrangement in accordance with item 7 hereunder in order to ensure that board lots will not be broken up in order to participate in the Arrangement.
An Arrangement is required to be extended to both all registered holders of odd lots (or eligible lots) and all beneficial owners or odd lots (or eligible lots) registered in nominee form.
The Exchange recognizes an exception from the requirement that either type of Arrangement be extended to all odd lot (or eligible lot) holders in the case of participants in share ownership plans established by a company for its employees and in the case of participants in dividend reinvestment plans. Since plans of this kind are intended to promote share ownership as an incentive to employees and shareholders and provide a special advantage to its participants, listed companies may wish to exclude plan participants from an Arrangement. Accordingly, a listed company will be permitted to exclude from an Arrangement any participant in a bonus, profitsharing, pension, retirement, incentive, stock purchase, stock ownership, stock option or similar plan instituted for employees of the listed company or its subsidiaries or any participant in a dividend reinvestment plan instituted by the listed company.
7. Duration of an Arrangement
An Arrangement is required to remain open for at least thirty calendar day from acceptance by the Exchange in order to ensure adequate dissemination of the information. An Arrangement may continue for a period of three months and may thereafter be renewed upon application to the Exchange.
8. Dissemination of Information
a) The listed company shall file with the Listings Department of the Exchange a copy of a draft press release announcing an Arrangement and a draft disclosure document which includes the information required under clause c) at least one week before the record date. The press release shall not be issued and the disclosure document shall not be distributed to shareholders until approval has been given by the Exchange.
b) A press release shall be issued on the first business day following the record date after approval has been given by the Exchange.
c) A disclosure document shall be sent by the listed company to each shareholder of record that holds an odd lot (or eligible lot). Where a shareholder of record holds shares on behalf of other persons, the listed company shall provide, upon the request of such holder, a sufficient number of copies for each beneficial owner of an odd lot (or eligible lot).
The disclosure document, the original of which must be signed by a duly authorized officer of the listed company and filed with the Exchange, shall include the following information:
i) Name of the listed company and the nature of the Arrangement being made available to odd lot (or eligible lot) holders. Outline of the option selected under item 1. above.
ii) A description of the class or classes of shares subject to the Arrangement and the holders eligible to participate. Definition of an odd lot (or eligible lot).
iii) State that the listed company will pay one or more member firms a fee to sell or purchase odd lots (or eligible lots), as the case may be, in the open market on behalf of odd lot (or eligible lot) holders. State the amount payable by the listed company to member firms per odd lot (or eligible lot) account. State that, for the purpose of the Arrangement, the odd lot (or eligible lot) holder is the customer of the member agreeing to sell or purchase shares, as the case may be, pursuant to the Arrangement and that the member is required to obtain the best available price for the odd lot (or eligible lot) holder.
iv) If applicable, state that the member may purchase or sell odd lots (or eligible lots) under the Arrangement as principal in accordance with Exchange Requirements.
v) State the duration of the Arrangement.
vi) State the purpose of the Arrangement.
vii) Describe the procedure that must be followed by both registered odd lot (or eligible lot) holders and beneficial owners of odd lots (or eligible lots) held in nominee form to participate in an Arrangement.
viii) Indicate the name, address and telephone number of the department or person at the listed company from whom additional information may be obtained. State that the odd lot (or eligible lot) holder should consider contacting his broker concerning the advisability of participating in the Arrangement.
d) A request for a renewal of an Arrangement shall be accompanied by a statement of the number of shares previously sold or purchased, as the case may be, under the Arrangement. Upon acceptance by the Exchange, the listed company shall issue a press release announcing the renewal of the Arrangement. (The eligible lot must be specified).
9. Clearance by Securities Commissions
The Montreal Exchange has filed applications with the securities commissions or similar securities regulatory authorities in the provinces of Canada in order to obtain blanket rulings with respect to listed companies which file notice with the Exchange to operate a Small Shareholder Selling and Purchase Arrangement pursuant to this Policy.
The blanket rulings requested would exempt the listed companies or their transfer agents from the registration requirements of the various Canadian securities acts for the solicitation by listed companies of odd lot (or eligible lot) holders with respect to participation in an Arrangement and all acts, negotiations or conduct engaged in by listed companies or their transfer agents in furtherance of odd lot holder participation in an Arrangement and including but not restricted to the receipt by listed companies or their transfer agents of orders to buy or sell securities on behalf of odd lot holders.
The Exchange will publish a notification when it has obtained complete responses to its applications with the Commissions.
Normal Course Issuer Bids
For the reasons described in the Introduction to this Policy, the procedure described herein is the exclusive method that may be used by a listed company to solicit odd lots for resale on the Exchange, or to offer to assist odd lot holders in acquiring additional shares on the Exchange to make up a board lot.
A listed company may also purchase odd lots offered in the market place pursu-ant to a normal course issuer bid implemented in accordance with the Policy on Normal Course Issuer Bids.
A listed company may have both a Normal Course Issuer Bid, and either a Selling Arrangement, or a Purchase Arrangement, or both, in effect at the same time.
Advantages of a Small Shareholder Selling Arrangement
Some advantages to listed companies of a Small Shareholder Selling Arrangement compared to the direct repurchase of shares by the listed company are as follows:
i) It is a much less costly method of reducing shareholder service expenses than the repurchase of shares.
ii) It minimizes the unequal treatment among shareholders that occurs when an issuer bid is made to holders of odd lots only.
iii) An Arrangement is not subject to the maximum volume limitation applicable to the issuer bid exemption provided under the Securities Act (Quebec).
Advantages of a Small Shareholder Purchase Arrangement
The Exchange encourages the use of a Purchase Arrangement either alone, or in conjunction with a Selling Arrangement, because it fosters an expanded shareholder base for listed companies. The Exchange is of the view that the vitality of the Canadian capital markets is enhanced by the participation of investors in such Arrangements and that both Selling Arrangements and Purchase Arrangements assist in promoting this objective by enhancing the marketability of small holdings.
Powers of the Exchange
The Exchange may, subject to such terms and conditions as it may impose:
i) exempt any listed company from the requirements of this Policy where, in the Exchange's opinion, it would not be prejudicial to the public interest to do so; and
ii) require such further disclosure by, or impose such further obligations on, a listed company as, in the Exchange's opinion, would be beneficial to the public interest.
Enquiries
The materials required to be filed under this Policy and enquiries regarding this Policy should be addressed to the Listings Department of the Exchange at (514) 871-2424, Telecopier (514) 871-3530 or Telex 055-60586.