NIN 99/42 - Adoption of National Policy 43-201 - Mutual Reliance Review System for Prospectuses and Annual Information Forms and Rescission of National Policy 1 [NIN - Rescinded]

Published Date:	1999-11-19
Effective Date:	1999-11-17

The Commission, together with other members of the Canadian Securities Administrators ("CSA"), has adopted National Policy 43-201 Mutual Reliance Review System for Prospectuses and Annual Information Forms (the "National Policy") and has rescinded National Policy Statement No. 1 Clearance of National Issues ("NP 1"). The National Policy will come into force and NP 1 will be rescinded effectiveJanuary 1, 2000. The Commission anticipates rescinding National Policy 30 Processing of "Seasoned Prospectuses" ("NP 30"). The Commission is publishing a notice of the proposed rescission of NP 30 concurrently with this Notice.

The National Policy establishes the mutual reliance review system ("MRRS") for prospectuses (including long form, short form and mutual fund prospectuses), prospectus amendments, waiver applications, pre-filing discussions and initial and renewal Annual Information Forms ("AIFs"). The CSA adopted a memorandum of understanding (the "MOU") signed as of October 14, 1999 to implement the MRRS. The Commission published the MOU on October 29, 1999 and the MOU will come into effect on January 1, 2000. The MOU will supercede the Memorandum of Understanding that implemented the Expedited Review System for Prospectuses and Renewal Annual Information Forms (the "Expedited Review MOU").

Background

The draft National Policy and the draft MOU were published for comment in June, 1998. Proposed Appendix A to the National Policy was published for comment in July, 1998 (the draft National Policy and proposed Appendix A, together referred to as the "1998 Publication Drafts").

The National Policy is derived, in part, from the Expedited Review MOU, NP 1, NP 30 and National Policy Statement No. 47 Prompt Offering Qualification System ("NPS 47"). The National Policy consolidates the procedures for the filing and co-ordinated review of prospectuses and AIFs previously contained in those instruments.

Transition

The Commission will not accept new filings made under NP 1 or the Expedited Review MOU after December 31, 1999. Filings made under NP 1 or the Expedited Review MOU prior to January 1, 2000 will continue to be processed in accordance with the systems contemplated in those instruments. The Commission will accept filings under the National Policy on a test basis until its effective date.

Unlike the Expedited Review MOU, the National Policy does not provide for an appendix containing a list of filers and their principal regulators. For those filers who have requested and were granted a change of principal regulator under the Expedited Review MOU, the principal regulator will be the regulator assigned to that filer following the application for change. For those filers whose head office is located in a jurisdiction in which the regulator is not willing to act as principal regulator, the filer may continue to use the principal regulator attributed to the filer under the Expedited Review MOU. Filers should note in their cover letter that accompanies materials filed whether they have requested a change under the Expedited Review MOU.

Substance and Purpose of the National Policy

The National Policy applies the principles of the MRRS to the review of prospectuses, AIFs and related filings in order to reduce unnecessary duplication in the review of materials filed in multiple jurisdictions. The MRRS is an important step towards increasing harmonization. Under the MRRS, each non-principal regulator relies primarily on the review and analysis of the principal regulator in reaching its own decision.

Summary of the National Policy

The following is a brief summary of the procedures set out in the National Policy which apply the MRRS principles to the filing and review of prospectuses, prospectus amendments, waiver applications, pre-filing discussions and initial and renewal AIFs.

• In most cases, the principal regulator of a filer is the regulator in the jurisdiction in which the head office of the filer (or in the case of a mutual fund, its manager) is located. A filer’s principal regulator can be changed: (i) automatically, (ii) at the request of the filer in exceptional circumstances, or (iii) at the request of participating principal regulators.
  
• A filer must file materials in all jurisdictions in which the filer is proposing to distribute securities, although the principal regulator is primarily responsible for the review. Even when the filer does not propose to offer securities by way of prospectus to purchasers resident in the jurisdiction of the principal regulator, the filer must still file the prospectus with the principal regulator as the principal regulator will review the materials.
  
• The periods for the review by the principal regulator and the non-principal regulators are consistent with those in the Expedited Review MOU, NPS 47 and NP 1 except where the review periods have been shortened because of selective review procedures.
  
• A non-principal regulator is entitled to opt out of the MRRS for any particular filing. In that case, the non-principal regulator will deal directly with the filer.
  
• Generally, a non-principal regulator will opt out for two reasons, either
  
  • the issuer has not met certain technical requirements in the jurisdiction of the non-principal regulator or has not received the necessary exemptive relief. An opt-out made on this basis will generally occur shortly after the filing is made. Once the technical requirements are met or the exemptive relief obtained, the non-principal regulator may be able to opt back into the MRRS for the materials, or
    
  • there is a significant substantive issue with the filing in the jurisdiction of the non-principal regulator. An opt-out made on this basis will generally occur shortly before the principal regulator issues a final MRRS decision document following unsuccessful attempts to resolve the issue through the principal regulator.
    
    
• The MRRS will not be available if the principal regulator refuses to issue a receipt for a prospectus or a notice of acceptance for an AIF. Following a refusal, a filer can pursue its right of appeal.
  
• The National Policy contains procedures that apply to applications for relief that are evidenced by the issuance of a receipt ("waiver applications"). All other applications for relief should be filed under National Policy 12-201 Mutual Reliance Review System for Exemptive Relief Applications (the "Applications Policy") if co-ordinated review is desired. Appendix B to the National Policy sets out those waiver applications that should be processed in accordance with the provisions of the National Policy. The list in Appendix B may be updated from time to time.
  
• The principal regulator deals with novel or substantive pre-filings and waiver applications in consultation with the non-principal regulators. The principal regulator alone deals with those that are routine. However, filers will need to request, in their cover letter, that non-principal regulators grant the same relief that the principal regulator has granted.
  
• If relief is not required in the jurisdiction of the principal regulator, a filer should designate an alternate principal regulator for the purposes of waiver applications or pre-files.
  
• The National Policy sets out procedures to deal with amendments to the preliminary and final prospectus.
  
• As a result of statutory provisions in Québec, a filer should include in the cover letter accompanying amendment materials a statement that it waives its right in Québec to a decision within two days and that it undertakes to cease distributing securities in Québec until the prospectus amendment MRRS decision document is issued.
  
• Appendix A sets out the materials that must be filed or delivered in connection with each category of filing in each relevant jurisdiction before a MRRS decision document will be issued. This includes the French language translation of documents where they are required to be filed. Appendix A will be amended from time to time, in part to conform to changes resulting from the reformulation of related instruments.

Summary of Changes to the National Policy from the 1998 Publication Drafts

Starting in August, 1998, the CSA and numerous law firms across Canada participated in testing the MRRS as contemplated in the 1998 Publication Drafts.

The comment period on the 1998 Publication Drafts ended on September 19, 1998. The CSA received 4 comment letters. Appendix A of this Notice lists the commenters on the 1998 Publication Drafts. The CSA considered the comments received and would like to thank each commenter for taking the time to provide their comments. Appendix B to this Notice provides a summary of the comments received and the responses of the CSA.

This section briefly summarizes the substantive changes made in the National Policy from the 1998 Publication Drafts. The CSA made changes to respond to comments received from industry participants and the experience that staff of the various CSA jurisdictions derived during the MRRS testing phase. All section references below are to the National Policy.

The National Policy has changed from the 1998 Publication Drafts by

Principal Regulator

• providing for the automatic change of principal regulator where the head office of the filer moves to another jurisdiction that is prepared to act as principal regulator (Section 3.3)
• providing that any other change in principal regulator will only be permitted in exceptional circumstances (Section 3.4)
• providing that for the first filing made after a change in principal regulator, a filer must indicate the change in SEDAR (Section 3.8)

Black-lined Documents

• clarifying that, consistent with NP 1, filers are not required to file a black-lined document or translated black-lined document prior to final materials but are strongly encouraged to do so (Section 4.3)
• including the relevant filing and review procedures for "seasoned prospectuses", previously contained in NP 30, but requiring a certificate from the filer (rather than a lawyer or other responsible person) as to the accuracy of the marking of changes (Section 4.4)

AIF

• including a review procedure for renewal AIFs, which is largely derived from the Expedited Review MOU and NPS47, except that the 10 day time limit for principal regulators to determine whether to review a renewal AIF has been deleted and the concept of "accepting" a renewal AIF has also been deleted (Section 5.5)

Receipt Procedures

• clarifying that only those underwriters registered in a jurisdiction can undertake activities for which registration is required (Section 7.2(2)(c))
• requiring the filer to confirm, when the preliminary prospectus is filed, that at least one underwriter is registered, or has filed an application for registration or for exemption from registration in each jurisdiction in which the distribution is proposed to be made (Section 7.2(2)(c)) 
• requiring the filer to confirm, when the final prospectus is filed, that at least one underwriter that has signed the prospectus is actually registered or has obtained an exemption from registration in each jurisdiction in which the distribution is proposed to be made (Section 7.4(4)(c)) 
• indicating that for New Brunswick, Prince Edward Island, Yukon, Northwest Territories and Nunavut, silence will imply consent and the principal regulator will be able to issue a MRRS Decision Document on that basis (Section 7.4 and Section 7.8).

Material Issues Raised Late

• defining a "material issue" for this purpose to include only potential receipt refusal issues (Section 7.8)
• adding a five day response period in which non-principal regulators will reconfirm they are clear for final after a late material issue has been identified (Section 7.8)

Pre-Filings and Waivers

• providing that a filer should designate an alternate principal regulator for the purposes of a pre-filing or waiver application where the relief is not required in the jurisdiction of the principal regulator (Section 9.1).
• including a list of those waiver applications that should be made under Part 9 of the National Policy rather than under the Applications Policy (Appendix B).

Status in British Columbia

Section 7.2(2)(d) and Section 7.4(4)(d) refer to a distribution being effected by a filer that has obtained registration. While legislation in B.C. contemplates security issuer as a category of dealer registered under the Act, it has normally been the practice of the Executive Director in B.C. not to grant registration under this category. Filers that anticipate registering in that category should discuss it with the Director of Registration at the Commission on a pre-filing basis. In addition, filers should note that for a non-reporting issuer, the Executive Director will generally impose as a condition to issuance of a receipt that a registered underwriter sign the prospectus certificate.

Section 7.7 and 10.8 of the National Policy indicate that certain non-principal regulators will issue their own decision documents. In British Columbia, since 1994, the Executive Director has not issued a local decision document for filings made under the Expedited Review MOU or the 1998 Publication Drafts as a result of BOR#94/1 and BOR#98/10. Effective June 29, 1999 the Securities Amendment Act, 1999 came into effect, which amended section 61 of the Act to no longer require that "a receipt be obtained from the Executive Director" (see NIN#99/17 and NIN#99/27). As a result, while the Executive Director will revoke BOR#94/1 and BOR#98/10, the Executive Director will continue the existing practice of not issuing a local decision document. Filers are entitled to rely on the MRRS decision document that the principal regulator issues.

Section 10.9(2) of the National Policy indicates that in certain jurisdictions, except in certain circumstances, a filer must not proceed with a distribution until a receipt for a prospectus amendment is issued. British Columbia is one of those jurisdictions. Section 67(5) of the Act provides that, except with the written permission of the Executive Director, a distribution must not proceed until the Executive Director issues a receipt for an amendment. The MRRS decision document evidences that the Executive Director has issued a receipt.

Appendix A to the National Policy refers to Local Policy Statement 41-601 as containing further filing requirements for B.C. This local policy statement will replace Local Policy Statement 3-02 and will be published prior to the effective date of the National Policy.

In Appendix B to the Notice, the CSA have responded to a comment relating to section 9.1 of the National Policy by indicating that "Various CSA jurisdictions will consider whether similar permissions will be issued to facilitate the use of the MRRS." In B.C. the Executive Director issued NIN#97/6, which provides permission for representations relating to listing in the context of a prospectus offering. NIN#97/6 sets out a number of conditions that must be complied with in order to rely on this permission.

Questions may be referred to any of:

DATED at Vancouver, British Columbia, on November 17, 1999.

Douglas M. Hyndman
Chair

Ref: NP 1
NP 30
NPS 47
NP 12-201
LPS 3-02
LPS 41-601
BOR #94/1
BOR#98/10
NIN#97/6
NIN#99/17
NIN#99/27



1. Osler, Hoskin & Harcourt by letter dated September 17, 1998.

2. Canadian Bankers Association by letter dated September 18, 1998.

3. Ogilvy Renault by letter dated September 23, 1998.

4. Canadian Advocacy Council of the Association for Investment Management and Research by letter dated October 22, 1998.



SUMMARY OF WRITTEN COMMENTS RECEIVED AND RESPONSE OF THE CSA

All section references below refer to the National Policy unless otherwise indicated. Bracketed numbers represent the corresponding section numbers in the 1998 Publication Drafts.

Discussion of General Comments

National Securities Commission and Regulatory Efficiencies

Three of the commenters strongly supported the regulatory initiatives of the CSA designed to increase the efficiency of securities regulation in Canada by eliminating duplication and harmonizing the legislation of each of the provinces. However, one of these commenters favoured creating a national securities commission rather than a "virtual" national securities commission.

One commenter suggested developing a uniform fee schedule that would provide for reduced fees for filings made with non-principal regulators reflecting the decreased regulatory burden imposed on these jurisdictions under the MRRS. Furthermore, the commenter urged the CSA to consider the benefits of a principal regulator model with authority to make binding decisions for non-principal regulators for limited purposes.

The CSA note the support for the MRRS initiatives and intend to continue their discussions on the MRRS with a view to continually improving the effectiveness of the system.

The MRRS is a review system adopted to streamline the review of materials and does not imply a decreased regulatory burden for the jurisdictions participating in the system. The CSA is of the view that it is beyond the scope of the MRRS to amend the fee schedule. However, a committee of the CSA is in the process of reviewing the general fee structure.

In response to the comment concerning the benefits of a principal regulator making decisions which bind other regulators, the CSA note that due to statutory requirements in several jurisdictions, the MRRS cannot provide for a regulator to make binding decisions on behalf of other regulators.

Scope

One commenter suggested maintaining the current Expedited Review system for renewal AIFs until the development of an MRRS instrument dealing with continuous disclosure documents. Alternatively, the commenter suggested including renewal AIFs in the MRRS under the National Policy.

As a result of the comment, the National Policy has been amended to include Renewal AIFs. See section 5.5 of the National Policy.

Testing and Comment Period

One commenter strongly supported the practice of testing policies before finalizing them. Another commenter would have liked a longer testing period before the end of the comment period.

The CSA agree that testing the MRRS is beneficial and note that testing of the MRRS will continue until the National Policy comes into force.

Continuous Disclosure Filings

One commenter noted that Industry Canada is presently working on its own system of electronic filing and electronic issuance of documents, tentatively known as SOURCE. The commenter understood that SOURCE would not be linked to SEDAR in the foreseeable future. As a result, federally-incorporated companies would continue to file annual financial statements and proxy circulars both federally and provincially. The commenter urged the CSA to consider the efficacy of including links to SEDAR for related electronic filings.

The CSA note the comment regarding linking SEDAR to SOURCE and have forwarded it to the SEDAR working committee.

Discussion of Specific Comments

Drafting Comments

Several commenters made various drafting suggestions.

The CSA have considered these comments and, in several places, have made changes to address the concerns of the commenters.

Section 2.1 - Definitions

One commenter suggested defining the terms "principal regulator" and "participating principal regulator" in the National Policy. In addition, the commenter felt that the term "MRRS decision document" was unwieldy. The commenter suggested replacing it with the simpler (and widely understood) term "receipt", to be applied to both prospectuses and AIFs.

Since the terms "principal regulator" and "participating principal regulator" are defined in the MOU, the CSA believe that it is not necessary to define them in the National Policy as well. Section 2.2 was added to indicate that terms that are not defined in the National Policy but are defined in the MOU should be read in accordance with the MOU. With respect to the term "MRRS decision document", the CSA do not believe that the term "receipt" is an accurate replacement. Moreover, using the term "receipt" in the National Policy might be confusing given its use in securities legislation in Canada.

The National Policy distinguishes between "applications" and "waiver applications" depending on whether or not a decision document separate from the MRRS decision document is issued. If a separate decision document is issued, it is an application under the Application Policy. If a separate decision document is not issued, it is a waiver application under the National Policy. According to one commenter, it is not clear how the distinction will be applied because there is no homogeneity among different jurisdictions as to the kinds of exemptions that require separate decisions and those that do not. The commenter suggested amending the National Policy to clarify the ambiguity and adding a schedule of applications that would be considered waiver applications.

The CSA agree that there may be filings where a formal order is required is some jurisdictions while the issuance of a receipt will evidence the required relief in other jurisdictions. Consequently, a list of applications, for which there is ambiguity regarding whether they should be made under the National Policy or the Applications Policy but which the CSA have determined should be made under the National Policy, has been added to the National Policy as Appendix B.

Section 3.2 - Determination of Principal Regulator

One commenter noted that under the Applications Policy, an applicant that does not require exemptive relief in the jurisdiction of its principal regulator may select an alternate principal regulator for that application and that testing has shown that this provision was useful. The commenter felt that a similar provision should be provided for prospectus filings.

Section 9.1 of the National Policy has been amended to permit the designation of an alternate principal regulator for pre-filings and waiver applications where no relief is needed in the jurisdiction of the principal regulator. The National Policy has not, however, been amended to provide for the designation of an alternate principal regulator in other circumstances. The CSA believe that, in order to achieve the benefits of a consistent and familiar relationship between the issuer and its principal regulator, all prospectuses must be filed with the principal regulator regardless of whether or not securities are being distributed to purchasers in that jurisdiction. A similar approach was not adopted in the Applications Policy since the securities requirements in the jurisdiction of the principal regulator may not contain the requirement from which an exemption is being requested. Consequently, lack of familiarity with the legislative requirements could hinder the principal regulator handling the matter expeditiously and therefore undermine the efficacy of the MRRS.

Section 3.3 - Automatic Change of Principal Regulator

According to one commenter, the language in section 3.2 of the 1998 Publication Drafts suggested that the "principal regulator" could be changed automatically or as a result of an exercise of discretion. The commenter felt that this was confusing. The commenter suggested that: (1) only a change in the location of the head office of the filer (or mutual fund manager) should result in an automatic change; (2) regardless of when an event that would result in an automatic change of principal regulator occurs, the change of principal regulator should not be effective until the next MRRS filing; (3) notification of the change in principal regulator should be made in the MRRS filing letter; and (4) all other changes in the circumstances relevant to the determination of principal regulator should be discretionary not automatic.

As a result of the comment, the National Policy has been amended to provide in section 3.3 that the principal regulator is changed automatically only if the head office of the filer (or mutual fund manager) is moved to a jurisdiction in which a participating principal regulator is located. The National Policy has also been changed to clarify that if materials have been filed, the principal regulator will not be changed until after the filing has been completed. In addition, section 3.8 has been added to include a requirement that designation of a new principal regulator be indicated in the SEDAR cover page information in connection with the first filing made subsequent to the change of principal regulator.

Section 3.4 [3.3] - Discretionary Change of Principal Regulator

One commenter was concerned that the administrative efficiency test for a discretionary change of principal regulator was too restrictive. The commenter felt that it would be preferable to delete the reference to administrative efficiency in both places where it appears, and leave the National Policy silent on the point. Another commenter thought that, in light of current technology, it was unclear what administrative efficiencies would result from a change of principal regulator based on geographical proximity.

The CSA note the comment. The term "administrative efficiency" has been replaced with the term "exceptional circumstances".

One commenter felt that the mechanism for a discretionary change was suited to handle changes in the "reasonable connection" of the filer to the jurisdiction of the principal regulator previously selected pursuant to clause 3.2(1)(b) or (d).

The CSA agree that the mechanism for a discretionary change of principal regulator is suited to handle changes relevant to the original determination of principal regulator under clause 3.2(1)(b) or (d). As indicated above, the National Policy has been amended to provide for an automatic change of principal regulator in certain circumstances.

The National Policy requires filing an application for a change with both the principal and requested regulator. One commenter felt that the application should be filed only with the principal regulator because only that regulator would know if the change would result in administrative efficiencies since it administered the filings in question. The commenter noted that where a "reasonable connection" exists, section 3.2 does not permit the requested regulator to decline to act and questioned why discretion was granted in the context of an application for a discretionary change of principal regulator.

The CSA note that the system is intended to create efficiencies not only for filers but also for regulators and therefore consultation among regulators is necessary to ensure that the requested regulator is able to assume the role of principal regulator. Further, the National Policy does not usurp the discretion of the requested regulator to determine whether or not to assume the role of principal regulator.

Since the National Policy requires filing an application for a change with both the principal and requested regulator, the commenter thought that it should address what happens if there is an impasse.

The CSA believe that disagreements will be extremely rare. If a disagreement arises, the two regulators will discuss the issue with the appropriate CSA committee. The CSA does not feel that it is necessary to amend the National Policy to address this issue.

One commenter felt that where the head office of the filer is located in one of the jurisdictions having accepted to act as principal regulator, no changes should be allowed.

The CSA note the comment and have amended the National Policy to indicate that changes would be permitted only in exceptional circumstances. However, there may be circumstances where the head office of the filer (or mutual fund manager) may not be in the jurisdiction of the most appropriate principal regulator for that filer. Consequently, the National Policy permits discretionary changes of principal regulator to be made to ensure that filers are designated the most appropriate principal regulator.

In the final sentence of the section, one commenter suggested adding the following sentence: "If the application is denied, the relevant Canadian securities regulatory authorities will provide written reasons for the denial to the filer".

The CSA agree with the comment and the National Policy has been amended accordingly.

Section 4.1 [4.2] - Election of MRRS and Identifying Principal Regulator

One commenter thought that it should not be necessary to indicate the basis for determining the principal regulator in the SEDAR cover page information. The commenter suggested that in the unusual circumstances where there is any question, the filer could be asked to provide an explanation.

The CSA believe that it is administratively efficient for information relevant to determining the principal regulator to be included in SEDAR. The National Policy has been amended to require the information in the SEDAR filer profile instead of in the SEDAR cover page information.

Section 4.2 [4.3]- Filing

Pursuant to section 4.2, a filing must be made with the principal regulator whether or not securities are proposed to be distributed to purchasers in that jurisdiction. According to one commenter, the fees payable on filing a final prospectus in Quebec are not adjusted based on the proceeds realized in the province as in the other jurisdictions. Consequently, the commenter suggested that the fees in Quebec be paid on the same basis as for a non-offering prospectus.

The National Policy states that where a filer proposes to offer its securities by prospectus only to purchasers in jurisdictions other than the jurisdiction in which the principal regulator is located, the materials must also be filed with the principal regulator and will be reviewed by the principal regulator. The CSA is aware that there are issues with the general fee structure in a number of CSA jurisdictions and regulatory fees are already the subject of serious consideration by the individual CSA members and by the CSA as a whole.

The National Policy requires a filer to submit materials, including fees, to its principal regulator regardless of whether the filer intends to distribute securities to purchasers in that jurisdiction. The commenter disagreed with this provision, felt that it would deter filers from using the MRRS and found it curious that the principal regulator would conduct the review and issue the MRRS decision document even though no securities were being distributed to purchasers in its jurisdiction.

The CSA believe that it is integral to the MRRS, in order to achieve the benefits of consistency and familiarity created by the MRRS, that all prospectuses are filed with the principal regulator regardless of whether or not securities are being distributed to purchasers in that jurisdiction.

Section 4.3 [4.4] - Black-lined Document

According to one commenter, the requirement to file an interim black-lined prospectus in French as well as English is new and a significant deviation from standard practice. As the black-lined prospectus is an attachment to a response letter to a comment letter, and as both the comment letter and the response letter are in English, the commenter thought that there was no rationale for requiring the enclosure to be translated. Consequently, the commenter recommended deleting this requirement.

Section 4.3 is based on paragraph (h) of Part 1 of NPS1. As a result of the comment, section 4.3 has been amended to clarify that, while filing a blackline at this stage is not required, it is recommended.

Part 5 - Review of Materials

One commenter noted that Part 5 does not specify how the filer receives or responds to comments that non-principal regulators may make. This commenter suggested amending the National Policy to ensure that the filer would receive early advice of any potential opt-out issues so that the filer can avoid opt-outs if possible.

The CSA note that comments from non-principal regulators are communicated to filers in one of two ways. Either the comment of the non-principal regulator is communicated to the filer in a comment letter from the principal regulator, in which case the filer responds to the principal regulator, or the non-principal regulator opts out of the MRRS for the filing and communicates directly with the filer, in which case the filer responds to the non-principal regulator. The CSA determined that Part 5 of the National Policy is clear and that no amendments are required.

Section 5.3 - Review Period for Short Form Prospectuses

One commenter thought that extending a short form review timetable to a long form timetable for complex offerings was a significant change from current practice which could have dramatic negative implications for bought deals. The commenter recommended replacing the words "the time periods applicable to long form prospectuses" in the last paragraph with the words "a longer time period may apply". Further, the commenter suggested deleting the words "use its best efforts to" in the final paragraph. If a principal regulator decides to deny the short-form review timing to an issuer, the commenter thought that notice should be given the next working day.

The CSA note that both the Expedited Review MOU and NPS 1 provide that the expedited or short form review periods apply unless the reviewing regulator believes that the proposed offering is too complex to be reviewed adequately within the shortened time frame in which case long form review periods apply. The CSA note that the Expedited Review MOU does not qualify the obligation of the regulator by only requiring it to use its "best efforts". Consequently, the CSA have considered the comment and have deleted the "best efforts" qualification in section 5.3 of the National Policy.

Part 6 - Opting Out

One commenter felt that it was necessary to impose temporal and other limits on the opting out process. The commenter suggested that: (1) non-principal regulators not be able to opt out before the principal regulator issues its comment letter; thereafter, they only be able to opt out within a prescribed time period; and (2) reasons for opting out generally be available to the public.

The CSA disagree with these comments. In order to retain statutory discretion with respect to filings, it is fundamental to the MRRS that non-principal regulators be entitled to opt out of the MRRS for a specific filing at any point in the review process.

With respect to the comment that reasons for opting out should be provided to the public, the CSA disagree. The MRRS does not change the information on the public record. Comments and responses to comments are not public information. It should be noted that the non-principal regulator’s opt out status will not be made public unless the non-principal regulator ultimately refuses to issue a receipt.

One commenter inferred from the request for comment that selection and acceptance of the principal regulator will substantially resolve the issues related to differing filings currently required by provinces. However, if non-principal regulators either "opt out", or decide to issue their own decision documents that revert back to their own filing requirements, the commenter was concerned that the consistency that is sought would be lost.

As indicated above, filers participating in the MRRS will be required to comply with the securities legislation and directions of each of the jurisdictions in which a distribution is being made whether or not the non-principal regulators have opted out. Consequently, neither the designation of a principal regulator nor the ability of non-principal regulators to opt out have the impact the commenter has ascribed to them.

Section 7.2 - Conditions to Issuance of Preliminary MRRS Decision Document

(i) General

One commenter suggested that the CSA modernize the Canadian system for issuing preliminary prospectus receipts. The commenter noted that in many other jurisdictions, most notably the United States, preliminary materials are filed with the regulator and the ‘receipt’ comprises a stamp indicating that the filer’s documents have been delivered. Marketing efforts could generally start as soon as filing is complete. By contrast, in some Canadian jurisdictions, no receipt is issued (and thus clients are advised that marketing in Canada cannot begin) until a clerical level review is complete and staff is satisfied that acceptable materials have been filed. In the commenter’s experience, most comments raised at this stage are not substantive and should not delay issuance of a receipt and that this process caused unnecessary uncertainty and difficulties in integrating Canadian offering procedures with those in other jurisdictions. For these reasons, the commenter recommended deleting section 7.2.

The CSA note the comment. Staff of several CSA jurisdictions have been working to harmonize requirements to reduce the circumstances leading to delay in issuing preliminary receipts. This, together with the confirmations required in subsection 7.2(2), should address unnecessary delays.

(ii) Subsection 7.2(2)

One commenter was concerned that when subsection 7.2(2) is read with Appendix A, "materials" will include a French language translation of the preliminary prospectus. The commenter submitted that traditionally in a long form offering a French language translation of the preliminary prospectus was filed within a few days of the filing in the principal jurisdiction, as it is difficult if not impossible for the translators to remain current with what are often extensive last-minute changes to the prospectus. The commenter acknowledged that the offering may not be marketed in Quebec until the French language version is filed and the receipt obtained from the CVMQ, but argued that marketing activities elsewhere in Canada should not be required to wait for the translation to be completed. The commenter noted that practical issues relating to translating were encountered in Spring 1998, when the CVMQ routinely had to extend the date for filing French language translations due to the volume of filings. For these reasons (if the comment under "(i) General" above is not accepted) the commenter recommended deleting subsection 7.2(2) or, at a minimum, amending it to clarify that the decision document will not be held up until the French language translation has been filed.

The CSA disagree with this comment. Under the MRRS, a preliminary MRRS decision document will not be issued until acceptable materials have been filed. If a French language translation is required by a jurisdiction in which the filing is being made, the preliminary MRRS decision document will not be issued until the French language translation is filed. Clause 7.2.2(a) has been amended to clarify that all required translations must be filed prior to the issuance of a MRRS decision document.

In reference to the comment that the CVMQ routinely extends the date for filing translations, the CSA note that, while the French language version of the preliminary prospectus is usually filed with the English language version, the CVMQ has granted exemptions from filing the French language translation of documents incorporated by reference (and not the French language translation of the preliminary prospectus itself) at the time of the filing preliminary materials on the condition that those documents are filed at the time of filing the final prospectus.

The commenter has assumed that non-principal regulators cannot opt out of the MRRS before issuance of the comment letter of the principal regulator and therefore suggested deleting the words "... that have not opted out of the MRRS for the materials".

The CSA disagree with this comment. A non-principal regulator may opt out of the MRRS for a filing prior to the issuance of the comment letter of the principal regulator. See the CSA response under Part 6 - "Opting out" above.

Section 7.4 - Conditions to Issuance of Final MRRS Decision Document for Long Form Prospectus, Renewal Shelf Prospectus and Initial AIF

(i) Subsection 7.4(1)

One commenter suggested that the National Policy clarify whether the term "statutory waiting period" referred to the period in subsection 65(1) of the Securities Act (Ontario) or the period in subsection 71(2) of the Securities Act (Ontario).

In response to the comment, the National Policy has been amended to clarify that, where applicable, "statutory waiting period" means the interval, which shall be at least ten days, between the issuance of a MRRS decision document for preliminary materials and final materials.

(ii) Subsection 7.4(2)

Subsection 7.4(2) indicates that all non-principal regulators must indicate in the SEDAR "Filing Status" screen that they are "Clear for Final" or opt out of the MRRS for the filing before a final MRRS decision document can be issued. The commenter thought that a default provision was required and that non-principal regulators should be deemed to be clear for final unless they have opted out within a specified time frame.

The CSA does not agree that a general default provision is appropriate as it is fundamental to the MRRS that non-principal regulators continue to exercise their discretion under the system and that any pending applications have been resolved (either through discretionary relief or otherwise) prior to the issuance of the MRRS decision document. The CSA agree, however, that it is not practical to require all non-principal regulators that have not opted out to indicate that they are "Clear for Final" before the principal regulator issues a final MRRS decision document. Consequently, the National Policy has been amended so that the regulators in New Brunswick, Prince Edward Island, the Yukon Territory, the Northwest Territories and Nunavut are deemed to be clear for final unless they opt out.

(iii) Subsections 7.4(4)

Given SEDAR, one commenter felt that confirmation of filing in all relevant jurisdictions should not be a condition to issuance of a MRRS decision document (unless the filing is not made through SEDAR).

The CSA believe that the requirement for confirmation of filing is administratively efficient and therefore have not made any changes to the National Policy.

Another commenter recommended deleting these requirements. The commenter was concerned how, on a practical level, a reporting issuer could give these assurances. Further, no such assurances are required under the Expedited Review System, where one province issues a receipt for and on behalf of other provinces. Similarly, the commenter recommended deleting the parallel requirement in subsection 7.2(3).

The CSA believe that determining that all required filings have been made is appropriately the responsibility of the filer and its advisers and, consequently, have not made the suggested change to the National Policy. The CSA note that under the Expedited Review System and MRRS, while the principal regulator issues a document evidencing that a receipt has been issued in all jurisdictions, the principal regulator does not issue a receipt on behalf of any other regulator or securities regulatory authority.

Section 7.8 - Material Issues Raised Late

Three commenters were concerned with the deemed opt out presently in section 7.8.

One commenter felt that the deemed opt out is inconsistent with the goal of increasing administrative efficiency in the review process and reducing the burden of dealing with numerous regulators that filers currently face. The commenter recommended deleting the concept of a deemed opt out on the basis that the role of the principal regulator in coordinating and centralizing the views of the non-principal regulators was crucial where the late material issue is controversial.

Another commenter recommended reversing the deeming provision so that non-principal regulators that fail to provide reconfirmation within a stipulated time are deemed to be clear for final unless they have opted out.

A third commenter recommended amending this section to set a more reasonable balance between the principles of regulatory flexibility and certainty for filers as follows: (1) "material issues" can only be raised by the filer or the principal regulator; (2) the principal regulator must first notify the filer of the new material issue, and attempt to resolve it with the filer, before asking for reconfirmation; (3) the filer should be permitted to provide a written submission (through SEDAR) on the new material issue at the same time as the principal regulator asks for reconfirmation; (4) the responsibility to ensure that the non-principal regulators respond to the reconfirmation request should not lie with the filer; (5) after a reconfirmation request, non-principal regulators should have a prescribed time period during which they may opt out of the MRRS; and (6) silence on the part of any non-principal regulator should mean that it is (i) not opting out of the MRRS and (ii) deemed to have reconfirmed that it is "Clear for Final".

In addition, one commenter recommended amending section 7.8 to specify the delays within which reconfirmation would be requested.

The CSA acknowledge that it would undermine the efficacy of the National Policy if material issues were raised late frequently. The CSA do not believe that this will occur since it was implicit in the 1998 Publication Drafts that late material issues could only be potential receipt refusal issues that the principal regulator raised as a result of its review of the file or that the filer created as a result of changes the filer made after a non-principal regulator is clear for final. The National Policy has been amended by adding a definition of "material issue" for the purpose of section 7.8 of the National Policy that includes the limitations described above.

While three commenters expressed concern with the deemed opt out provision, the National Policy continues to require the non-principal regulators to reconfirm. The CSA note that the regulators in New Brunswick, Prince Edward Island, the Yukon Territory, the Northwest Territories and Nunavut are not required to reconfirm. This is consistent with changes made to section 7.4 of the National Policy. The CSA agree that it is necessary to specify how long a reconfirmation request should be left open before silence is taken to signify that a non-principal regulator has opted out. Consequently, the National Policy has been amended to provide that a non-principal regulator that does not provide written reconfirmation within five days is considered to have opted out of the MRRS for the filing.

Section 9.1 - Pre-Filings and Waiver Applications - General

One commenter felt that, in a situation where a pre-filing or waiver application is being made to more than one non-principal regulator but not to the principal regulator, a filer should be able to submit one set of materials and identify and deal with one of the non-principal regulators as the ‘lead regulator’.

The CSA have considered the comment and have amended section 9.1 of the National Policy to provide that if the filer does not require exemptive relief in the jurisdiction of its principal regulator, the filer should select the participating principal regulator in the jurisdiction with which the filer has the next most significant connection to act as the principal regulator for the purposes of the pre-filing or waiver application.

Further, the commenter was concerned about the requirement to obtain all waivers, and advise the principal regulator of having done so, before a decision document is issued. For example, the waiver relief in respect of a listing representation is always evidenced by the granting of a receipt. Now, a separate application and document will be required and will have to be filed with each jurisdiction since the Securities Act (Ontario) is to be amended to delete this requirement. The commenter thought that this result was not efficient or user friendly and was a deviation from current practice.

The CSA note the comment. Generally, the CSA believe that it is appropriate for a filer to indicate to the principal regulator that it has obtained all necessary waivers. Specifically with respect to listing representations, the CSA note that, in connection with the Expedited Review MOU, a number of jurisdictions issued a blanket permission to make listing representations. The permissions allow listing representations to be made in preliminary prospectuses filed in more than one jurisdiction under the Expedited Review MOU. Various CSA jurisdictions will consider whether similar permissions will be issued to facilitate the use of the MRRS.

Subsection 9.3 - Procedure for Novel and Substantive Pre-Filings and Waiver Applications

One commenter thought that the time-line for processing these applications did not create the most efficient structure to ensure the swiftest treatment. The commenter concluded that the communication of the principal regulator’s intended treatment of the application is subordinate to and follows the prior issuance of the comments of the non-principal regulators upon the expiry of the delays mentioned as paragraph 9.3(b). The commenter felt that this structure created an unnecessary overlap with the delays mentioned at paragraph 9.3(b), since communication of the principal regulator’s intended treatment of the application engenders further unspecified delays to allow the non-principal regulators to object. The commenter recommended imposing the five business day delay of subsection 9.3(b) upon the principal regulator. The intervention of non-principal regulators would then be preserved through their opportunity to object within a reasonable specified delay following the principal regulator’s determination.

Another commenter suggested imposing prescribed time periods for: (1) the principal regulator to decide whether an application raises novel or complex issues (three days); (2) the principal regulator to notify the non-principal regulators of its proposed disposition (seven working days from the date of the filing in the case of a long form prospectus); and (3) the non-principal regulators to register any disagreement with the proposed disposition (two working days, rather than "a reasonable period of time", from the date of the notice of proposed disposition). In the case of a disagreement, the commenter suggested that a non-principal regulator (and perhaps the principal regulator) consult with the filer in an attempt to resolve the issue without any non-principal regulator having to opt out of a particular pre-filing or waiver application.

The CSA disagree with these comments. Currently, there are no time lines imposed on the review of pre-filing or waiver applications and the review is not coordinated amongst the various jurisdictions in which the distribution will eventually be made. Consequently, the CSA are of the view that the mechanism for reviewing pre-filings and waiver applications in the National Policy is an improvement over the current system and have not made any changes to the National Policy to address these comments.

Section 10.1- Filing of Amendments

One commenter noted that subsection 10.1(2) [10.1(b)] appears to inadvertently introduce into the securities legislation of other provinces a requirement unique to Quebec. In provinces where amendments do not require a receipt it is not necessary to cease distribution after the amendment is filed. The commenter presumed that subsection 10.1(2) [10.1(b)] was meant to apply only to Quebec (ie. the undertaking was only made to the CVMQ) and recommended clarifying the drafting.

The CSA agree that the undertaking is only required to be made to the CVMQ and only pertains to distributions in Quebec and the National Policy has been amended accordingly. This change does not, however, alter securities legislation and directions in certain jurisdictions in Canada (referred to in section 10.9 of the National Policy) which prohibit a filer from proceeding with a distribution or additional distribution until a receipt for a prospectus amendment is issued.

Section 10.2 - Conditions to Issuance of MRRS Decision Document for Preliminary Prospectus Amendments

One commenter recommended deleting subsections 10.2(1), (2) and (3) of the 1998 Publication Drafts.

See the CSA response above under the heading "Section 7.2 - Conditions to Issuance of Preliminary MRRS Decision Document".

Section 10.4 - Review Period for Preliminary Prospectus Amendments

One commenter thought that it was appropriate for regulators to be subject to reasonable time limits in reviewing preliminary prospectus amendments and suggested that an amendment result in ‘resetting’ certain time limits. In particular, the commenter suggested that: (1) in subsection 10.4(1), for an amendment filed prior to issuance of the comment letter, provide that the principal regulator has another five working days from the original due date to issue its comment letter; (2) in subsections 10.4(2) and (3), delete all references to "best efforts"; and (3) in subsection 10.4(4), restrict the circumstances in which the time periods in subsections 10.4(2) and (3) may not apply.

The CSA agree that if an amendment is filed before the issuance of the first comment letter, the comments of the principal regulator should be due on the later of the date that is five working days after the filing of the amendment and the original due date for the comment letter. The National Policy has been amended accordingly. The CSA does not, however, agree with the suggestion to delete all references to "best efforts" or to impose further time lines on the process.

Section 10.7 - Form of Prospectus Amendment MRRS Decision Document

One commenter was concerned that section 10.7 merely described a problem that should be resolved through the MRRS. The commenter suggested harmonizing the different administrative practices relating to receipts for amendments, and imposing a uniform system on market participants.

The CSA note that whether or not a receipt is issued for an amendment to a preliminary prospectus is the result of different legislative requirements not different administrative practices. Consequently, harmonizing these requirements is beyond the scope of this project.

Appendix A

One commenter was disappointed with the proposed materials because they indicated a limited commitment to streamlining securities regulation throughout Canada and developing consistent legislation in each of the provinces. The commenter felt that it was inefficient for market participants to keep track of the different rules, policies and fee schedules in force from time to time in the various jurisdictions.

One commenter was of the view that several requirements in Appendix A were not consistent with the general objective of the National Policy. The commenter acknowledged that some single-jurisdiction requirements correspond to specific legislation that is not within the purview of the CSA (e.g., in Ontario, to comply with the Freedom of Information and Protection of Privacy Act), and the commenter accepted that these anomalies would have to remain. However, the commenter believed that the CSA should develop a uniform approach when specific requirements imposed by certain jurisdictions are not consistent with the requirements in the majority of jurisdictions.

The CSA understand that for filings made in more than one Canadian jurisdiction there would be significant benefits from harmonizing the documents that need to be filed. While harmonization is beyond the scope of this project, these requirements are currently being reviewed in the context of long form filings (in Ontario, proposed Rule 41-501 General Prospectus Requirements), short form filings (proposed NI 44-101 Short Form Prospectus Distributions) and mutual fund filings (NI 81-101 Mutual Fund Prospectus Disclosure). The CSA intend to make conforming changes to Appendix A so that it reflects the revisions made to the documents required to be filed in the context of long form, short form and mutual fund filings when the national instruments or rules referred to above are finalized. In addition, the CSA intends to make conforming changes to Appendix A to the National Policy when, through ongoing discussions on harmonization, the CSA jurisdictions agree on a particular uniform filing requirement.