Decisions
VANCOUVER STOCK EXCHANGE [Decision]
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BCSECCOM #:
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Document Type:
Decision
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Published Date:
1998-08-14
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Effective Date:
1998-08-13
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Details:
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COR#98/198
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF NEWS DISSEMINATION POLICY OF THE
VANCOUVER STOCK EXCHANGE
HEARING AND REVIEW
| PANEL: | DOUGLAS M. HYNDMAN | CHAIR |
 | JOAN L. BROCKMAN | MEMBER |
| DIANE K. WOLCH | MEMBER |
| DATE OF HEARING: | AUGUST 6, 1998 |
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| APPEARING: | MALCOLM O. MACLEAN | FOR CANADIAN |
| TRACEY P. GIBB | CORPORATE NEWS INC. |
| MARK L. SKWAROK | FOR CANADA |
| ROBERT E. BREIVIK | STOCKWATCH |
| HEIN POULUS | FOR (ISDN) INFORMATION |
| LLOYD M. MACNEIL | SERVICE DISSEMINATION NETWORK LIMITED |
| LARRY R. JACKIE | FOR THE VANCOUVER |
| MICHAEL A. SKENE | STOCK EXCHANGE |
| HOWARD SHAPRAY | FOR CANADA NEWSWIRE |
| BRAD CRAMER | LTD. |
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| J.A. ANGUS PATRICIA TAYLOR | FOR COMMISSION STAFF |
DECISION OF THE COMMISSION
1. INTRODUCTION
This decision relates to three applications made to the commission under section 27 and 28 of the Securities Act, R.S.B.C. 1996, c. 418, to stay the implementation of amendments to the Vancouver Stock Exchange policy on news dissemination by listed companies.
In June 1998, the Exchange approved amendments to its Corporate Finance Services Policy and Procedures Manual which, effective September 1, 1998, will require all non-exempt listed companies to file their news releases electronically with the Exchange via its internet site. The amendments provide that the Exchange will transmit the full text of each news release to Canada NewsWire Ltd. (“CNW”), for dissemination across its Canadian Disclosure Network®, and will make the news release available to subscribers through the Exchange’s internet site. Companies are free to use other services for additional dissemination. The amendments require non-exempt listed companies to open accounts with CNW, which will charge listed companies $0.58 per word for the dissemination service, representing a discount from CNW’s regular rates. The amendments advise that any listed company that falls more than 90 days in arrears in paying its account with CNW may be subject to a trading halt until the account is paid in full. Exempt companies will have the option of using the new dissemination arrangement or continuing under the existing arrangement, under which companies make their own arrangements for dissemination of news releases and file them with the Exchange by fax or in paper form. The new policy was announced on July 6, 1998.
Canadian Corporate News Inc. (“CCN”) applied on July 28, 1998, for a hearing and review, under section 28 of the Act, of the Exchange decision to require non-exempt listed companies to disseminate news through CNW and for a stay of that decision under section 165(5) pending the full hearing and review. Canada Stockwatch applied, on July 31, 1998, for a hearing and review under section 28 of the Exchange decision to issue the policy amendments and for a stay. (ISDN) Information Service Dissemination Network Limited applied on August 5, 1998, for a hearing and review under sections 27 and 28 of the Exchange policy to compel non-exempt listed companies to use CNW to disseminate their news and for a stay.
Commission staff support the application to stay the implementation of the policy amendments. The Exchange and CNW oppose it.
2. NATURE OF PROCEEDINGS
We convened a hearing on August 6, 1998, to consider the stay applications. At the outset CNW, supported by the Exchange, argued that there was no urgency to this matter and asked for an adjournment of several weeks, or at least a week, to allow it time to prepare its response to the applications. The Exchange also submitted that the adoption of the policy amendments was not a decision subject to review under section 28 and, in the alternative, that the three applicants were not directly affected by the decision and therefore were not entitled to apply for a hearing and review under section 28. We ruled that the matter was of sufficient importance and urgency that the hearing should proceed that day. We also determined that, to avoid the necessity of dealing with the applicability of section 28 and with the standing of the applicants, we would consider the applications under section 27 rather than section 28.
The Exchange and CNW questioned the authority of the commission to receive applications, hold a hearing or issue a stay under section 27. That section reads as follows:
- 27 (1) If the commission considers it to be in the public interest, the commission may make any decision respecting the following:
- (a) a bylaw, rule or other regulatory instrument or policy, or a direction, decision, order or ruling made under a bylaw, rule or other regulatory instrument or policy, of a self regulatory body or exchange;
(b) the procedures or practices of a self regulatory body or exchange;
(c) the manner in which an exchange carries on business;
(d) the trading of securities or exchange contracts on or through the facilities of an exchange;
(e) an exchange contract trading on an exchange;
(f) a security listed and posted for trading on an exchange;
(g) issuers, whose securities are listed and posted for trading on an exchange, to ensure that they comply with this Act and the regulations.
(2) A person affected by a decision made by the commission under subsection (1) must act in accordance with the decision.
This section gives the commission broad discretion to make any decision it considers to be in the public interest regarding an Exchange policy. That would undoubtedly include authority to order a stay or deferral in the effective date of a new policy to allow time for a more thorough consideration of the policy.
With respect to process, the distinction between section 27 and 28 is significant. Section 28 (combined with section 165) entitles a person directly affected by a decision of the Exchange to apply within 30 days to have the decision reviewed, and the commission is then required to hold a hearing and decide the matter. By contrast, no one is entitled to apply for the commission to exercise its power under section 27 and there is no requirement that the commission hold a hearing before determining whether and how to exercise it. However, there is nothing to prevent the commission from considering applications to exercise this power or from holding a hearing to consider evidence and submissions before doing so. Subject to the principles of administrative law, the commission can follow what ever process it considers appropriate under section 27.
In Brink Hudson Lefever Ltd. [1996] 41 BCSC Weekly Summary 45 the commission reviewed a decision of an Exchange hearing panel. Brink Hudson Lefever had initially applied for a hearing and review under what is now section 28 but did not pursue the application. The commission determined that the decision should be reviewed in any event and initiated a hearing under what is now section 27. Brink Hudson Lefever challenged the standing of the executive director in the proceedings because it was not specifically provided for in section 27. The commission determined that the executive director should have full standing and commented as follows:
- These proceedings were initiated by the Commission under section [27] of the Act. Section [27] contains no statutory requirement for a hearing before the Commission makes a decision under that section. However, in reviewing an Exchange decision, the Commission considers it appropriate to follow a process analogous to that established for hearings and reviews under sections [28, 165 and 166] of the Act.
The appropriate process to be followed under section 27 will depend on the matter under consideration. In the current case, we are dealing not with a decision of a hearing panel but with a general policy decision of the Exchange. However, because the matter came before us by way of contested applications, we consider a process similar to a hearing and review to be a fair and appropriate way of considering the applications.
3. BACKGROUND
The Exchange’s current policy on news dissemination puts the onus on listed companies “to ensure prompt and thorough dissemination” of news releases disclosing material information. The policy provides guidance on dissemination methods but leaves it to companies “to choose their own methods for dissemination of news releases based on their particular situations and needs.” In certain circumstances, companies are required to use commercial news disseminators. The policy provides, for information, a list of commercial news disseminators, including the parties to this hearing (CNW, CCN, Stockwatch and ISDN) and two others (Corporate Dissemination Services Inc. and QData Systems Inc.). Other Canadian exchanges have similar policies.
Exchange staff developed a proposal to change the dissemination policy. A one page memo prepared on May 11, 1998, by Susan Copland, Manager, Policy, described a proposal to require all listed companies to file news releases with the Exchange via the internet. The memo said the news releases would then be posted on the Exchange’s website. Regarding dissemination, the memo said:
- It is anticipated that the Exchange will enter into arrangements with news disseminators [plural] to publish the releases filed in this manner. This would save the companies a step, as they would only have to file with the Exchange and not with the disseminators. The plans for these arrangements with the disseminators has (sic) not yet been finalized.
The memo went on to say that the new filing system was scheduled to be announced on June 1. It was to take effect on an optional basis on September 1 (with a fee charged for paper filing to encourage internet filing). Internet filing would be required effective January 1, 1999.
On May 28, 1998, the Exchange’s president, Michael Johnson, and its vice president and chief financial officer, Lloyd Costley, described the proposal to the executive committee of the Exchange’s board of governors. No decision was made at that time.
On June 9, 1998, the proposal was presented for approval to the corporate finance committee, which is comprised of member firm representatives and public governors of the Exchange. It was described in a memo of that date by Warren Funt, vice president of corporate finance services. This time, the focus was on the proposed arrangement with CNW, which had evidently been developed over the previous four weeks. After summarizing the proposal, the minutes of the meeting describe the benefits and the committee’s decision as follows:
- The purpose of these changes is to facilitate better minimum dissemination and reduce the number of steps a company must undertake to file and disseminate its news releases. Listed companies fulfill their minimum dissemination requirements simply by filing the news release with the Exchange. As a result of this process, the VSE web site will become a complete record for news releases filed by listed companies.
Members approved of the following policy changes required to implement this initiative:
- 1. Companies are required to file news releases electronically as of September 1, 1998 in fax and web based form and as of November 1, 1998 in web based form only.
2. News releases must be disseminated by a news service as prescribed by the Exchange.
The policy changes approved by the corporate finance committee were presented to and approved by the executive committee on June 24, 1998. The Exchange entered into a contract with CNW on July 3. According to affidavits submitted by the Exchange and CNW, the contract provides for a two year initial term during which CNW is to be designated and appointed as the sole news disseminator for news releases transmitted to the Exchange. It is automatically renewable for a further three year term, during which the Exchange will be entitled to designate additional news disseminators. The contract may not be cancelled by either party, unless CNW breaches its terms, in which case the Exchange can terminate it. We were not provided with a copy of the contract or any evidence of other terms. Counsel advise it contains a confidentiality clause.
The policy changes, together with instructions on how to set up accounts with CNW and the VSE website, were communicated by letter to listed companies. They were publicly announced for the first time by a news release on July 6. The actual amendments to the corporate finance manual were published on July 21.
Since the policy changes were announced, the commission and the Exchange have received correspondence from listed companies expressing concern about the requirement for listed companies to deal with CNW.
The Toronto Stock Exchange asked the Exchange to exempt companies interlisted on the two exchanges from the policy changes. The Exchange refused. The TSE subsequently sent letters to interlisted companies saying that it was not changing its policy and suggesting that those concerned about the policy changes have their shares trade exclusively on the TSE. The Alberta Stock Exchange issued a news release saying that it “fully concurs with the [TSE’s] view that competition among news services fosters enhanced service levels and technical innovation to the ultimate benefit of all market participants. It is the ASE’s belief that listed companies should be entitled to choose the news dissemination service of their choice from the recognized services.”
At the hearing, we received affidavit evidence provided by representatives of the applicants, CNW and the Exchange. The evidence provided by the applicants indicates the following:
- According to Judith Hutchins, senior vice president for the western region, CCN has contracts with about 80 listed companies to provide them exclusive news dissemination services, and provided exclusive services to a further 180 listed companies in the past year. CCN disseminated almost 2,000 news releases for Exchange listed companies in its most recent fiscal year. The policy changes would effectively exclude CCN from this market and threaten the viability of its 14 person Vancouver office. CCN claims it is capable of providing the same services as CNW, that it could offer the same price and that the Exchange could achieve the objectives of the policy changes without requiring listed companies to use a single disseminator. Hutchins says she first learned of the policy changes on July 6 or 7.
- John Woods, publisher and editor, describes Stockwatch as a “full service provider of stock market information”, which provides quotes for all Canadian stock exchanges, disseminates news releases and provides access to a historical, cross referenced news data base. Stockwatch publishes all news releases issued by Exchange listed companies, in most circumstances at no charge to the companies. News releases are included in hard copy and internet versions of Stockwatch purchased by subscribers and are disseminated, typically about 20 minutes after they are received from issuers, through five other news services to brokers throughout Canada. Woods says he became aware of the policy changes from the Exchange’s news release on July 6. He says that adoption of the policy may prevent Stockwatch from publishing news releases before CNW, causing a loss of subscriptions and the loss of ability to maintain its historical data base. He also expresses concerns about the impact of the policy changes on listed companies, which would have to pay for dissemination services which many now receive at no cost, and on the Exchange, which Woods suggests may lose many of its better listings. He also suggeststhat the Exchange’s plan to put all news releases on its own website might put it into competition with Stockwatch.
- Ian Baird, vice president and general manager, explains that ISDN entered the news dissemination market for Exchange listed companies in 1991 and now disseminates about 25% of the news releases. He says that the policy changes came as a surprise to ISDN and that, if they are not stayed, they will almost certainly cause ISDN to lose all of its Exchange listed company business by September 1. He says that ISDN is already losing clients to CNW as a result of the policy changes. He also says that CNW’s “B.C. monopoly” will give it a competitive advantage in competing with ISDN elsewhere in Canada.
- Angela Huxham, director of surveillance, says that one of the purposes of the policy changes is “to facilitate broader and faster dissemination of listed company information thereby levelling the playing field for all investors.” She says the changes were made to improve the reporting process for listed companies and to enhance the operational efficiency of handling news releases at the Exchange. She describes the benefits of the changes as including prevention of unauthorized news releases and easy verification that news has been disseminated. She says the Exchange determined in developing its new system that “it would require the assistance of a technologically advanced premier news disseminator” and that its minimum dissemination standard would be raised to that provided by CNW’s Canadian Disclosure Network® (English). She also notes several other factors that recommended CNW to the Exchange.
- Lloyd Costley says the new system will “increase the speed, accuracy and breadth of dissemination of information to investors.” He describes a number of benefits to the Exchange, listed companies and investors. He says the purpose of the initial term under its contract with CNW (during which CNW is to be the only service available for required dissemination through the Exchange website) was “to allow the Exchange to work with one disseminator with one set of technical requirements to make the transition to the new playing field as quick, efficient and problem-free as possible.” He goes on to describe the technical difficulties that would arise from having additional disseminators involved at the outset and says that having “additional disseminators during the start-up period would add greatly to the overall development, testing and implementation time and cost of the system” and “would significantly delay the implementation date of the project.”
CNW provided evidence by way of an affidavit of Larry Cardy, vice president, Western Canada.
- Cardy says CNW’s business is the real-time simultaneous electronic dissemination of information through a dedicated global communications network. He describes CNW’s Canadian Disclosure Network® (English) as “the most widely used dedicated network technology and method for the simultaneous, timely disclosure of material information by companies whose shares are traded in the public markets.” He goes on to describe in some detail the superiority of CNW’s disclosure technology and network over those of the applicants and he disputes CCN’s claim that it is capable of providing equivalent service. He also disputes CCN’s claim that it may close its Vancouver office if the policy changes are not stayed. By contrast, he says CNW would suffer irreparable harm if a stay is granted. He says CNW would suffer a loss of reputation, will have to terminate the employment of 10 individuals hired to service the Exchange’s requirements under the contract, will suffer losses from costs incurred and committed for systems and premises, and will lose the opportunity to earn revenue of $1.5 to $2 million per year under the contract. He concludes by saying that the existing system of news dissemination is inadequate for timely disclosure and that staying the policy changes will harm the public interest.
4. ANALYSIS
The issue before us is whether we should issue an order under section 27 to stay the implementation of the changes to the Exchange’s news dissemination policy. The applicants submit that the policy changes are contrary to the public interest and would irreparably harm their businesses by forcing their listed company clients to disseminate through CNW. They say there would be little harm in delaying the implementation of the policy changes to maintain the status quo while the commission conducts a full hearing and review. Commission staff say there is a serious question whether the policy changes are in the public interest and that allowing it to proceed before a full review could cause irreparable harm to the applicants and to listed companies forced to change their dissemination arrangements. They submit the course of prudence would be to stay the policy changes pending a full hearing, to be held as soon as reasonably possible, and a commission decision on the policy.
The Exchange argues that the policy changes are in the public interest, as they would increase the speed, breadth and efficiency of news dissemination by listed companies and improve the accessibility of disclosure to both investors and regulators. The Exchange says the policy changes should proceed as planned and that staying them would be in direct conflict with the public interest.
CNW argues that a stay should not, indeed can not, be granted because it would interfere with its vested rights under a binding commercial contract with the Exchange. In the alternative, CNW says that the applicants have failed to meet the test previously established by the commission for granting a stay.
The test for the granting of a stay under section 165(5) of the Act was set out in Re Quinto Mining Corp. [1996] 42 BCSC Weekly Summary 4. The three parts of the test are as follows:
- Serious question: The applicant must make out a prima facie case or show that there is a serious question to be tried as opposed to a frivolous or vexatious claim.
- Irreparable harm: The applicant must establish that irreparable harm will be suffered if the stay is not granted.
- Balance of convenience: The commission must determine which of the parties will suffer the greater harm from the grant or refusal of a stay pending a hearing and decision on the merits. When weighing the balance of convenience, the commission must take into account the public interest.
In this case, we are dealing not with a stay of a decision under section 165(5) but with an application under section 27 to delay the implementation of the policy changes pending a review by the commission. In these circumstances, it is useful to apply the logic of the three part test but, in our view, we should apply it in a more flexible manner than under section 165(5).
The essential question we must decide is whether the commission should review and consider varying the policy changes and, if so, whether it is appropriate to defer their implementation pending the review. In that context we will apply a modified version of the three part Quinto test.
Serious Question
In this case, we would rephrase the question from “whether there is a serious question to be tried” to “whether there is a serious policy issue that merits a review by the commission.”
The policy changes adopted by the Exchange are intended to broaden and accelerate the dissemination of news releases issued by listed companies. They would provide a uniform process, using a technologically sophisticated disseminator and a vast dissemination network, and would ensure that all news releases of listed companies are included in a comprehensive listed company data base available through the Exchange’s website. On the face of it, these appear to be highly desirable improvements.
Nevertheless, there are some aspects of the policy changes, and the process by which they were adopted, that give us cause for concern.
- 1. The Exchange developed the policy changes very rapidly, without consulting affected parties or the public, and first announced them less than two months before their scheduled implementation.
We would not suggest that the Exchange should necessarily be expected to follow the same rigorous standard of public consultation as the commission. However, for a matter as significant as the news dissemination policy changes, we believe there should have been at least some consultation with listed companies and market professionals. The lack of consultation could be rectified through a commission review process.
- 2. The appointment of a single provider of primary news dissemination services for listed companies is a significant change, whose implications for the market are not clear.
ISDN argued that the arrangement between the Exchange and CNW violates the Competition Act, either by creating an illegal monopoly or by illegally restraining trade. We have neither the expertise nor the jurisdiction to determine that issue. Our concern is not whether the policy changes would offend competition law but how they will affect the securities market.
The policy changes appear to offer significant benefits but the applicants have identified some potential disadvantages that merit consideration. Listed companies are currently able to negotiate their own dissemination arrangements. Many disseminate their news releases through services that do not charge them a fee. The effect on these companies and on the future development of the dissemination business when there is only one supplier is uncertain. Clearly the applicants are mainly concerned with their own private interests, which may not coincide with the public interest or with the interests of their clients. Nevertheless, in our view, the concerns they raise are not frivolous and they should be reviewed to ascertain whether they would outweigh the benefits of the policy changes or whether they can be addressed through modifications to the policy changes.
- 3. It would be an unusual use of the Exchange’s power to halt trading in the shares of a listed company to enforce collection of accounts by CNW.
The halting of trading in a listed company’s shares is normally done to allow time for dissemination of news or to prevent trading while the Exchange investigates unusual market or corporate developments. It may also be used where the listed company has failed to pay fees owing to the Exchange itself. We are not aware that the power has previously been used to enforce collection of a third party’s accounts, and we think that a review of that aspect of the proposal would be appropriate.
There may also be other aspects of the policy changes that merit review but, at this stage, we believe we have identified a sufficient number of issues to conclude that there is a serious policy issue that merits a review by the commission.
Irreparable Harm
The applicants say that they will suffer irreparable harm if a stay is not granted because their listed company clients will be forced to move their primary dissemination business to CNW. They say that even if the commission were ultimately to quash or vary the policy changes, they would be unable to recover much of the lost business. Although the Exchange and CNW protest that nothing in the policy changes would prevent listed companies from continuing to use the applicants’ services to supplement the dissemination through CNW, the applicants argue persuasively that it is unlikely that many companies would do so because, for CCN and ISDN, the companies would be paying twice for similar services. Stockwatch could presumably continue to obtain and publish all listed company news releases but it could lose the advantage of timeliness it gets from receiving them directly from most companies.
Commission staff note that, in addition to the harm that would be visited upon the applicants, many listed companies would incur costs for switching their dissemination business to CNW.
CNW and the Exchange challenge the assertion that the applicants would suffer irreparable harm in the absence of a stay. On the contrary, CNW says that it would suffer irreparable harm if a stay is granted because it has incurred costs for staff, facilities and systems to prepare for the new arrangement and it would forego the additional revenue it anticipates.
In our view, the applicants have shown that they will suffer irreparable harm if a stay is not granted.
Balance of Convenience
The final, and crucial, element of the test is the balance of convenience. It is clear that, whether or not we grant a stay, someone will suffer harm or, at least, inconvenience. The question we must answer is who will suffer the greater harm from the grant or refusal of a stay pending a hearing and a decision on the merits of the policy changes.
If a stay is not granted, CCN and ISDN will lose most or all of their non-exempt listed company clients, who will be forced to become clients of CNW. The position of Stockwatch is less clear but its business arrangements would clearly be disrupted.
If a stay is granted, CNW will have to defer implementing the new arrangement, for which it has incurred costs, and will lose at least a few months of revenues it would have earned under the arrangement. It was suggested that a stay might also cause the Exchange to be in breach of its contract with CNW. However, as we were not provided a copy of the contract or any evidence as to the implications of the Exchange’s being unable to implement the policy changes on schedule, any conclusions on this point are purely speculative. In any event, the Exchange described this contractual issue as a minor consideration.
The primary consideration in determining the balance of convenience with respect to the implementation of the policy changes must be the public interest. The primary disadvantage or inconvenience of a stay would be to defer the implementation of policy changes that would appear to offer the prospect of faster, broader and more secure dissemination of news releases. The Exchange also raises the prospect that a stay would hurt its reputation, which we consider unlikely, and cause it to lose a marketing opportunity.
Weighed against this is the prospect, in the absence of a stay, that the Exchange will implement significant policy changes, developed without benefit of public consultation and announced on short notice, with the possibility that they will be varied following a review by the commission. Although the Exchange and CNW describe the existing dissemination policy as inadequate, they have provided little if any evidence to support this assertion. The policy has been in place in the current form for about ten years and is similar to policies of other exchanges. There is clearly no critical threat to the public interest that requires an immediate change in the dissemination policy before a thorough review takes place.
In our view, the balance of convenience favours a stay in the implementation of the policy changes pending a full hearing and review by the commission.
5. DECISION
We have concluded that it is in the public interest to stay the implementation of the policy changes by the Exchange pending a review of those changes by the commission. A hearing of the matter should be scheduled to take place as soon as reasonably practicable. We direct commission staff to work with the parties in this hearing, and any others who may wish to have standing in the full hearing, to coordinate the presentations and ensure that the relevant policy issues are adequately canvassed.
The Exchange clearly considers this to be a policy issue of some importance. Despite our conclusion that the policy changes should be stayed to allow a full review, we do not wish to allow this matter to drag on indefinitely. We will therefore stay the implementation for six months, on the basis that the review should be completed and a commission decision issued within four months. This deadline can be varied as matters unfold but is provided for the guidance of the parties.
Accordingly, under section 27 of the Act, we order that the effective date of the news dissemination policy changes announced by the Exchange on July 6, 1998, be changed from September 1, 1998, to March 1, 1999.
DATED on August 13, 1998.
FOR THE COMMISSION
| Douglas M. Hyndman | Joan L. Brockman |
| Chair | Member |
| Diane K. Wolch |
| Member |