NIN 97/51 - Proposed National Instrument 71-101 and Companion Policy 71-101CP The Multijurisdictional Disclosure System [NIN - Rescinded]

The Commission, together with other members of the Canadian Securities Administrators ("CSA"), is publishing for comment the text of proposed National Instrument 71-101, Companion Policy 71-101CP and the proposed Implementing Rule, which will implement National Instrument 71-101 in British Columbia. The National Instrument, Companion Policy and Implementing Rule deal with the multijurisdictional disclosure system.

The proposed National Instrument and Companion Policy are initiatives of the CSA, and the proposed National Instrument is expected to be adopted as a rule in each of British Columbia, Alberta, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan, and as a policy in all other jurisdictions represented by the CSA. The proposed Companion Policy is expected to be implemented as a policy in all of the jurisdictions represented by the CSA.

Substance and Purpose of Proposed National Instrument and Companion Policy and Implementing Rule

The proposed National Instrument, Companion Policy and Implementing Rule set out the requirements for a U.S. issuer to use the multijurisdictional disclosure system, a joint initiative that was implemented in 1991 by the CSA and the Securities and Exchange Commission of the United States (the "SEC") to reduce duplicative regulation in cross-border offerings, issuer bids, take-over bids, business combinations, continuous disclosure and other filings. The multijurisdictional disclosure system ("MJDS") implemented in Canada was intended to remove unnecessary obstacles to certain distributions of securities of U.S. issuers in Canada and to facilitate take-over and issuer bids and business combinations involving securities of U.S. issuers having less than a specified percentage of Canadian securityholders, while ensuring that Canadian investors remain adequately protected.

National Instrument 71-101 contains the mandatory aspects of NP45 and the accompanying rule or blanket ruling. The non-mandatory aspects of NP45 that are interpretive in nature or describe the administrative processes of the Canadian securities regulatory authorities are included in proposed Companion Policy 71-101CP. The proposed Implementing Rule contains the exemptions from the requirements of the Securities Act and the Securities Rules.

The CSA are of the view that the regulatory regime established by NP45 has operated efficiently and with minimal difficulties since its inception and that major changes are not required at this time to the policy rationale underlying NP45 or the concepts in NP45. Accordingly, the intent of the CSA in preparing the proposed National Instrument and Companion Policy is to ensure that these instrument remain largely consistent with the regulatory regime in place for issuers eligible to use the MJDS.

The proposed National Instrument and Companion Policy are published in a three column format, the left hand column sets out the text of the proposed National Instrument or Companion Policy, the middle column sets out the corresponding text from NP45 and the accompanying rule or blanket ruling, and the right hand column contains explanatory notes.

Terms used in the proposed Companion Policy that are defined or interpreted in the proposed National Instrument or a definition instrument in force in the jurisdiction and not otherwise defined in the proposed Companion Policy should be read as defined or interpreted in accordance with the proposed National Instrument or the definition instrument, unless the context otherwise requires.

Summary of Proposed National Instrument

The MJDS permits public distributions of securities of U.S. issuers that meet specified eligibility criteria to be made in Canada on the basis of disclosure documents prepared in accordance with U.S. federal securities laws (with certain additional Canadian disclosure). A public distribution of securities of a U.S. issuer may be made under the MJDS both in Canada and in the United States or in Canada only.

The MJDS also reduces disincentives to the extension to Canadian securityholders of rights offerings by U.S. issuers by permitting such rights offerings to be made in Canada on the basis of U.S. disclosure documents. Similarly, it facilitates the extension to Canadian securityholders of U.S. issuers of take-over bids, issuer bids and business combinations in the circumstances contemplated by the proposed National Instrument. The MJDS permits such transactions to be made in Canada generally in the same manner as in the U.S. and on the basis of U.S. disclosure documents.

Further, the MJDS permits U.S. issuers to use U.S. continuous disclosure documents in Canada in lieu of Canadian documents and exempts insiders of U.S. issuers from the requirement to file insider reports provided the required filings are made with the SEC.

The only significant substantive difference between the proposed rule and NP 45 relates to the reconciliation of financial statements in prospectuses. NP 45 allows for the reconciliation of financial statements to either Canadian GAAP or International Accounting Standards ("IAS") in a prospectus offering of equity securities. The proposed National Instrument only permits reconciliation to Canadian GAAP in similar circumstances. However, the proposed Companion Policy provides that an issuer may still apply under the rule for permission to reconcile to IAS.

Alternatives Considered

The CSA considered whether to maintain the alternative of reconciliation of financial statements to IAS in distributions by eligible U.S. issuers of equity or non-investment grade debt or preferred shares. The CSA concluded that, at this stage in the development of IAS, a reconciliation to IAS in some cases may not provide Canadian investors in those securities with sufficient information to make an informed investment decision. As a result, the proposed National Instrument requires a reconciliation to Canadian generally accepted accounting principles.

Anticipated Costs and Benefits

The benefit provided by MJDS as continued by the proposed National Instrument is the reduction of duplicative regulation and the consequent increased access to the Canadian capital markets by U.S. issuers. The MJDS also facilitates the extension by U.S. issuers of rights offerings to Canadian securityholders and the making of bids for U.S. issuers with Canadian securityholders to Canadian residents. It may also be in the interest of Canadian investors to have greater access to distributions of securities of U.S. issuers. Because of the reciprocal nature of the multijurisdictional disclosure system, an additional benefit for Canadian issuers and selling securityholders offering securities and bidders for the securities of Canadian issuers is the increased access to the U.S. markets provided by the multijurisdictional disclosure system implemented by the SEC.

The proposed National Instrument imposes no material costs on U.S. issuers, but rather seeks to reduce the costs and duplicative regulation. Based on the experience under NP45, the CSA believe that the benefits of the proposed National Instrument justify the costs.

Related Instruments

In certain provinces, including British Columbia, proposed implementing rules allowing for the operation of the National Instrument in those provinces are being published for comment concurrently with the publication of the proposed National Instrument. These rules vary certain sections of the legislation in those provinces and provide that certain other provisions of the rules adopted by those provinces do not apply to a prospectus, take-over bid circular or issuer bid circular filed in accordance with the National Instrument.

Comments

Interested parties are invited to make written submissions with respect to the proposed National Instrument, Companion Policy and Implementing Rule. Submissions received by March 5, 1998 will be considered.

Submissions should be addressed to all of the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission, in duplicate, as indicated below:

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
Securities Commission of Newfoundland
Securities Registry, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon Territor

c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8

Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows:

Claude St. Pierre, General Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montréal, Québec H4Z 1G3

A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securities legislation is certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained.

Questions may be referred to any of

Veronica Singer
Policy Advisor
British Columbia Securities Commission
(604) 899 - 6646

Agnes Lau
Deputy Director, Securities Analysis
Alberta Securities Commission
(403) 422 - 2191

Barbara Shourounis
Director
Saskatchewan Securities Commission
(306) 787 - 5645

Randee Pavalow
Policy Coordinator
Ontario Securities Commission
(416) 593 - 8257

Rosetta Gagliardi
Policy Advisor
Commission des valeurs mobilières du Québec
(514) 873 - 5009 ext. 252

DATED at Vancouver, British Columbia, on December 4, 1997

Douglas M. Hyndman
Chair