Securities Law

BCN 2001/22 - Advance Notice of Multilateral Instrument 45-102 Resale of Securities and Related Documents [BCN - Rescinded]

Published Date: 2001-04-20
Effective Date: 2001-04-20

Multilateral Instrument 45-102 Resale of Securities (the "Instrument"), Form 45-102F1, Form 45-102F2 and Form 45-102F3 (the "Forms") and Companion Policy 45-102CP (the "Policy") are initiatives of the Canadian Securities Administrators ("CSA").

The Commission has not yet made the Instrument and Forms as a rule, nor has it made the related consequential amendments to the Securities Rules.  This Advance Notice is being published to advise that, if the required government approval is obtained, the Commission expects to make the Instrument and Forms as a rule on or before June 29, 2001 when the Instrument and Forms are expected to come into force as a rule in British Columbia, Alberta, Manitoba, Ontario, Nova Scotia and Newfoundland, as a Commission regulation in Saskatchewan, as a policy in New Brunswick, Prince Edward Island and the Yukon Territory, and as a code in the Northwest Territories and Nunavut.  It is expected that the Policy will be implemented as a policy in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Newfoundland, Prince Edward Island, the Yukon Territory, the Northwest Territories and Nunavut (the “adopting jurisdictions”).  The Instrument, Forms and Policy will not be adopted in Québec. 

If and when the Commission has received all necessary approvals and the Instrument and Forms are made as a rule, the Commission will re-publish the Instrument and the Forms, together with the Policy.  The Ontario Securities Commission ("OSC") has made the Instrument as a rule effective June 29, 2001 and is publishing it in the April 20, 2001 issue of the OSC Bulletin.  The full text of the Instrument, Forms and Companion Policy may be found at the OSC website at www.osc.gov.ca.

Rescission of Local Policy Statement 3-27, BCI 45-506, BOR 72-501, Form 23 and various Securities Rules

Effective the date the Instrument and Forms come into force, Local Policy Statement 3-27 System for Shorter Hold Periods with an Annual Information Form and Exemption for Certain Distributions Outside British Columbia, BCI 45-506 In the Matter of the System for Shorter Hold Periods with an Annual Information Form, BOR 72-501 Prospectus Exemption for Trades in Securities of a Non-Reporting Issuer over a Market Outside Canada, Form 23 and sections 127, 128(d), 132 and 140 to 143 of the Securities Rules will be repealed.  Consequential amendments will also be made to sections 1(1), 75(1), 78(3) and 136 of the Securities Rules.

Background

The Commission, together with the adopting jurisdictions, first published drafts of the Instrument, Forms and Policy for public comment on or about September 8, 2000.1

1NIN#2000/39

Comments on the publication drafts were received from 9 commentators.  The adopting jurisdictions have considered the comments provided in these submissions and the final versions of the Instrument, Forms and Policy reflect the decisions of the adopting jurisdictions.

A list of the commentators is included in Appendix A to this Notice.  A full description of the comments received, and the response of the adopting jurisdictions to the comments, is included in Appendix B to this Notice. 

Substance and Purpose of the Instrument, Forms and Policy (the "Instruments") 

The Instruments harmonize certain provincial and territorial resale restrictions that apply to the resale of securities initially acquired under exemptions from the prospectus requirement. The general principle underlying the Instrument is that where a reporting issuer provides the market with current information concerning its affairs, securities that are distributed by an issuer without a prospectus may be traded in the secondary market after a reduced hold period.  The Instrument also harmonizes the regulation of distributions of securities from a control block and provides a prospectus exemption to permit the resale of securities of a non-reporting issuer, which has a minimal connection to Canada, over a foreign exchange or market.

The Instrument imposes resale restrictions on

  • trades of securities initially distributed under an exemption from the prospectus requirement for which the seller is required to have held the securities for a specified period of time (a “private placement exemption”);
  • trades of securities initially distributed under an exemption from the prospectus requirement for which the issuer of the securities is required to have been a reporting issuer for a specified period of time (a “seasoning exemption”); and
  • trades of securities from the holdings of a control person (“control distributions”).

Under the Instrument, securities distributed by an issuer that is not a qualifying issuer, under private placement or seasoning exemptions, are subject to a 12 month hold or seasoning period, and in the case of a control distribution, generally a six month hold period.  The Instrument reduces, for an issuer that is a qualifying issuer at the time of the initial distribution, the hold periods applicable to private placements and seasoning periods from 12 months to four months.  The Instrument also reduces the hold period applicable to control distributions from six months to four months.

A qualifying issuer is defined in the Instrument as an issuer that, among other conditions, is a reporting issuer in any of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec or Nova Scotia, is an electronic filer under SEDAR, has filed a current AIF and either has a class of equity securities listed or quoted on a qualified market and has not been notified by the qualified market that it does not meet the requirements to maintain that listing or quotation and is not designated inactive or suspended, or outstanding securities that have received an approved rating.

With the exception of the resale restrictions for control distributions, the resale restrictions in the Instrument do not apply in open jurisdictions, being Manitoba, New Brunswick, Prince Edward Island or the Yukon Territory.  These jurisdictions do not impose resale restrictions on securities distributed under a prospectus exemption.

Under the Instrument, a purchaser of securities acquired under a private placement exemption may resell the securities after the expiry of the applicable hold period if, among other conditions, the issuer is (i) a SEDAR filer, or (ii) a reporting issuer in the jurisdiction of the purchaser. If an issuer is a SEDAR filer, a purchaser in a jurisdiction in which the issuer is not a reporting issuer will be able to resell the securities of the issuer, provided the issuer has been a reporting issuer in any of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, or Nova Scotia for at least 12 months or, in the case of a qualifying issuer, four months.  If an issuer is not a SEDAR filer and not a reporting issuer in the jurisdiction of the purchaser, the securities of the issuer acquired by the purchaser will be subject to an indefinite hold period.

Under the Instrument, securities acquired under a seasoning exemption may be resold, provided the issuer is a SEDAR filer and has been a reporting issuer in any of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec or Nova Scotia for at least 12 months or, in the case of a qualifying issuer, four months. If the issuer is not a SEDAR filer, it must be a reporting issuer in the jurisdiction of the purchaser for 12 months or, in the case of a qualifying issuer, four months before the securities may be resold.

The Instrument also provides relief from the prospectus requirement for the resale of securities initially acquired under a prospectus exemption, from an issuer that was not a reporting issuer in any Canadian jurisdiction at the date of the distribution, and has a minimal connection to Canada, provided the securities are resold over an exchange or market outside Canada.

Summary of Significant Changes to the Instruments

1. Definition of Qualifying Issuer

Two commentators were of the view that an issuer should remain a qualifying issuer, provided the qualified market has not notified the issuer that it does not meet the requirements to maintain its listing or quotation. The requirement in the proposed Instrument published for comment required an issuer to meet the requirements to maintain its listing or quotation in order to be a qualifying issuer. The CSA Committee agrees with this comment and has amended the definition of qualifying issuer accordingly.

2. Seasoning Periods for Securities Issued Before an Initial Public Offering 

The CSA Committee recognize that many issuers, especially emerging issuers, issue securities to their employees or employees of their affiliates under prospectus exemptions prior to an issuer becoming a reporting issuer, upon completing its initial public offering (“IPO”). Employees who acquire securities of an issuer under prospectus exemptions prior to its IPO should not have to hold their securities longer than employees who acquire securities under prospectus exemptions after its IPO. Consequently, a provision has been added that provides that an issuer that is a qualifying issuer, be a reporting issuer for four months prior to the date of the trade of securities by an employee. This provision will ensure that the seasoning period in respect of a qualifying issuer is the same in regard to trades of securities of the issuer by employees, whether such securities are acquired prior to, or after, the issuer’s IPO. It also recognizes the value of allowing issuers to use employee stock options, security purchase plans and other similar employee incentives in issuers’ business development strategies prior to their IPOs.

3. Resale Conditions for Insiders and Officers of the Issuer

The proposed Instrument has been amended to provide a less onerous resale condition on selling security holders who are insiders or officers of an issuer. In the proposed Instrument published for comment, a selling security holder must have “reasonable grounds to believe that the issuer is not in default of any requirement of securities legislation”. This wording would require the selling security holder to have evidence to believe there has been no default.  The proposed Instrument now requires that a seller who is an insider or officer of the issuer have “no reasonable grounds to believe that the issuer is in default of securities legislation.”

4. Resale Restrictions for a Trade in a Security Acquired in a Take Over Bid or Issuer Bid

In order to harmonize existing provisions in securities legislation, a provision has been added that provides an exemption from the resale restrictions for trades of securities issued in a take over bid, or issuer bid, if a securities exchange take over bid circular or issuer bid circular was filed in respect of those securities. In some jurisdictions, an issuer can become a reporting issuer by filing the take over bid circular, while in other jurisdictions an issuer must be a reporting issuer in order to file a take over bid circular. With respect to a take over bid, for the purpose of harmonization, the provision requires the offeror issuer to be a reporting issuer at the time of take-up and payment under the bid.

5. Trades in an Underlying Security

In order to reflect existing securities legislation in a number of jurisdictions (including B.C.), new provisions have been added to provide that no resale restrictions will be imposed on trades of underlying securities issued or transferred under the terms of convertible securities that are distributed under a prospectus or securities exchange take over bid circular.

Questions

Questions relating to the Instrument and related documents may be referred to:

Derek E. Patterson, Manager and Senior Legal Counsel, Exemptions & Orders
Leigh-Anne Mercier, Senior Legal Counsel, Exemptions & Orders
British Columbia Securities Commission
(604) 899-6500
or (800) 373-6393 (in B.C.)


April 20, 2001

 

 

Douglas M. Hyndman
Chair

Ref: NIN#2000/39
 LPS#3-27
 BCI#45-506
 BOR#72-501

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

 


Appendix A

LIST OF COMMENTATORS ON MULTILATERAL INSTRUMENT 45-102, FORMS 45-102F1,
45-102F2 AND 45-102F3 AND COMPANION POLICY 45-102CP

RESALE OF SECURITIES


1. Simon Romano by letter dated October 18, 2000

2. McKercher McKercher & Whitmore by letter dated October 26, 2000

3. BCE Inc. by letter dated November 14, 2000

4. The Canadian Bankers Association by letter dated December 4, 2000

5. International Northair Mines Ltd. by letter dated December 6, 2000

6. Canadian Capital Markets Association by letter dated December 8, 2000

7. The Canadian Advocacy Council of the Association for Investment Management and Research by letter dated December 8, 2000

8. Stewart McKelvey Stirling Scales by letter dated December 15, 2000*

9. Canadian Venture Exchange Inc. by letter dated January 9, 2001*


* These letters were received following the expiry of the comment period.

 


Appendix B

SUMMARY OF COMMENTS RECEIVED ON PROPOSED MULTILATERAL INSTRUMENT
45-102, PROPOSED FORMS 45-102F1, 45-102F2 AND 45-102F3 AND PROPOSED COMPANION POLICY 45-102CP (the "proposed Documents")

AND

RESPONSE OF THE CANADIAN SECURITIES ADMINISTRATORS

A. INTRODUCTION

On September 8, 2000, certain members of the CSA published the proposed Documents for comment.  The CSA specifically requested comments on the following two issues:

(i) the requirement that a legended certificate representing the securities distributed under section 2.5 be provided to investors; and

(ii) the provision for a four-month hold period for investment grade securities. 

The comment period for these materials expired on December 8, 2000.  The CSA received nine submissions on the proposed Documents.  The CSA has considered all submissions received and thanks all commentators for providing their comments.  The following is a summary of the comments received, together with the CSA's responses, organized by topic.

B. COMMENTS ON ISSUES SPECIFIED BY THE CSA

1. Requirement to Legend Certificates (section 2.5 of the proposed Rule)

Comment (i):  Four commentators do not support the requirement that securities certificates include a legend to state that subject to securities legislation, the holder of the securities shall not trade the securities before the expiry of the appropriate hold period.  Two of these commentators note that the market is increasingly relying on the book-entry form of securities and one commentator believes that the legend would not be effective for book-entry form securities because of the lack of physical certificates. 

Response:  The CSA note the increasing use of book-entry form securities.  However, the CSA believe that the legend requirement currently is the most practical manner of providing certainty as to applicable hold periods and of ensuring more effective regulation of the exempt market.  The legend requirement has not been removed from the Multilateral Instrument.

Comment (ii):  Two commentators point out that the Canadian market is likely to follow the U.S. market in 2004 to move from the current practice of settling securities 3 days after the trade (“T+3”) to settling securities the day after the trade (“T+1”). These commentators believe that the transition from T+3 to T+1 would require greater automization and less reliance on physical certificates, and that the legend requirement would be counterproductive and incompatible with the technological requirements of a T+1 system.  One commentator suggests that the CSA should seek other options to make the information required in the legend available to potential purchasers without using physical certificates. 

Response:  The CSA note the concerns regarding the possible transition from T+3 to T+1 clearance systems.  However, the transition is not likely to occur until 2004.  The CSA will revisit the legend issue prior to the implementation of the T+1 system.

Comment (iii):  One commentator believes that the legend requirement would cause problems for resale under the rules of The Toronto Stock Exchange Inc. (the “TSE”) and other stock exchanges even after the applicable hold periods have elapsed.

Response:  The CSA do not believe that the legend requirement will cause problems since the legend may be removed by the transfer agent after the applicable hold period has expired.  In addition, British Columbia and the CDNX have legending requirements and have not experienced any problems relating to resale after the expiry of the applicable hold period.

Comment (iv):  One commentator states that the language “subject to securities legislation” in the legend is vague and suggests the CSA adopt the language of the CDNX legend.

Response:  The CSA have amended the legend language in the Multilateral Instrument to incorporate wording similar to the CDNX legend.

Comment (v):  One commentator proposes that the legend requirement be imposed on non-qualifying issuers but not on qualifying issuers.  The commentator believes that the four-month hold period for securities of qualifying issuers is too short to justify the cost and administrative burden of placing the legend on a certificate.

Response:  It is the CSA’s view that it is necessary for clarity to impose the legend requirement on both qualifying issuers and non-qualifying issuers.

Comment (vi):  One commentator states that a legend requirement is workable for share certificates, special warrants and subscription agreements.

Response:  The CSA have maintained the legend requirement.

2. Four-Month Hold Periods for Investment Grade Securities

No comment was received on this issue.  The CSA plan to retain the four-month hold period for investment grade securities.

C. GENERAL COMMENTS

Comment (i):  The commentators are generally very supportive of the proposed Documents.  Four commentators expressed their support of the CSA’s initiative to harmonize and clarify the restrictions on resale of securities previously issued under prospectus exemptions.  One commentator states that the harmonization would help all market participants by reducing the cost and complexity for the distribution and resale of securities in Canada.  One commentator supports the proposed Documents and believes that they will greatly clarify the hold period and/or resale restrictions when securities issued in one jurisdiction under exemptions are transferred to purchasers in other jurisdictions.

Response:  The CSA agree.

Comment (ii):  One commentator expresses regret that Quebec is not a party to the Multilateral Instrument and states that Quebec's absence would be detrimental to Ontario issuers and investors due to the close relationship between the Ontario and Quebec capital markets.  The commentator encourages the CSA to seek to harmonize the resale rules with Quebec.

Response:  The CSA will continue to seek to harmonize the resale rules to the extent possible.

Comment (iii):  One commentator recommends that the CSA take further initiatives to harmonize rules regarding filing of documents and payment of filing fees in order to reduce the filing of duplicate documents and payment of multiple fees under different provincial legislation.

Response: The CSA acknowledge the commentator’s concern and agree that harmonization would be beneficial.  However, the issues regarding filing of documents and payment of fees are not within the purpose of this Instrument.  These issues are currently being assessed by other project groups.

Comment (iv):  One commentator believes the proposed Documents would provide issuers with an incentive to improve their continuous disclosure.

Response:  The CSA agree and believe that the shorter hold period for qualifying issuers will encourage more issuers to file AIFs thereby improving disclosure of issuers in the marketplace.

D. SPECIFIC COMMENTS ON THE PROPOSED RULE

1. Definition of “Private Company”

Comment:  One commentator notes that the OSC has proposed to remove the private company exemption in proposed OSC Rule 45-501 Exempt Distributions which was published for comment on September 8, 2000 at (2000) 23 OSCB 6205 (the “proposed OSC Rule 45-501”).  The commentator suggests that in order to avoid confusion, the term “private company” should not be used in the proposed Documents.  Alternatively, the commentator recommends that the “private company” exemption be retained in the proposed OSC Rule 45-501 so that the “private company” definition can also be retained in the proposed Documents.

Response:  The CSA believe that the issue whether to retain the private company exemption should be dealt with by the OSC in the implementation of the proposed OSC Rule 45-501.  The CSA note that the “private company” exemption is currently still in effect in Ontario.  Furthermore, the CSA recognize that subsequent to the removal of the private company exemption in Ontario by proposed OSC Rule 45-501, the "private company" exemption or the "private issuer" exemption will remain in effect in other jurisdictions.  In Ontario, existing private companies will continue to exist although no new private companies will be created.  Accordingly, the CSA have decided to retain the term “private company” in the Instrument. 

2. Definition of "Qualifying Issuer"

Comment (i):  One commentator supports the adoption of the concept of “qualifying issuer” and believes the shorter hold period for securities of qualifying issuers would make it easier for listed companies to compete for investment funding without sacrificing investor protection. 

Response:  The CSA confirm that one of the CSA's objectives is to shorten the hold period for securities of qualifying issuers.  The CSA also believe it is important to set eligibility standards for qualifying issuers.

Comment (ii):  One commentator states that often the securities exchanges do not delist or suspend those issuers who fail to meet the listing maintenance standards.  The commentator suggests that in order to be a qualifying issuer, it should be sufficient that an issuer is listed and posted on a qualified market and it should not be required that the issuer meet the listing maintenance standards.

Response: The CSA regard the exchange listing maintenance standards as measures implemented for the protection of the market and of investors.  So long as an issuer has not been notified by an exchange or market that it no longer meets the listing maintenance standards of the securities exchange the issuer will remain a qualifying issuer.  This will encourage issuers to be more diligent in maintaining their listing standards, which is beneficial to the market and to investors. 

3. Definition of “Qualified Market”

Comment (i):  One commentator suggests that the Paris Bourse, now Euronext, should be a “qualified market”.

Response:  The CSA have traditionally accepted documents from the markets listed in the definition.

Comment (ii):  One commentator disagrees with the exclusion of Tier 3 issuers of CDNX from the definition of “qualified market”.  The commentator states that Tier 3 issuers are subject to the same continuous disclosure requirements as Tier 1 and Tier 2 issuers.  The only difference is that Tier 3 issuers do not have active businesses.  The commentator states that a longer hold period for a Tier 3 issuer is not justified provided that the Tier 3 issuer discloses its current state of affairs pursuant to applicable regulations.

Response:  The CSA has not amended the definition of "qualified market" to include Tier 3 issuers as Tier 3 issuers do not have active businesses.

Comment (iii):  One commentator expresses concern that an issuer may drop from one listing category to another listing category on a multi-tiered market such as the TSE.

Response:  An issuer will remain eligible so long as it is listed on the TSE and has not been notified by the exchange that it does not meet the requirements to maintain that listing and is not designated inactive or suspended.

Comment (iv):  One commentator asks why CDN is not included as a qualified market particularly if junior capital pools are included.

Response:  Most issuers on CDN (now Canadian Unlisted Board or CUB) have been transferred to CDNX.  CUB is a trade reporting or quotation system without listing requirements.  Accordingly, the CSA have decided not to include CUB as a qualified market.

4. Application to First Trades (sections 2.3, 2.4 and 2.11 of the proposed Rule, now sections 2.3, 2.4 and 2.14 of the Multilateral Instrument)

Comment:  One commentator states that sections 2.3, 2.4 and 2.11 of the proposed Rule (now 2.3, 2.4 and 2.14 of the Multilateral Instrument) seem to apply to any trade, not just a first trade.  The commentator believes this is excessive.

Response:  Each of sections 2.3 and 2.4 of the proposed Rule refers to “a trade of securities initially distributed under an exemption from the prospectus requirement”.  Section 2.11 of the proposed Rule (now section 2.14 of the Multilateral Instrument) refers to "a trade by an underwriter of securities distributed under an exemption from the prospectus requirement listed in Appendix H".  Section 2.14 is intended to apply to any subsequent trade, not just the first trade.  Section 2.7 Hold Period and Seasoning Period Exception has been added to the Multilateral Instrument to clarify the meaning of "a trade".  Further, subsection 1.2(2) of the Companion Policy clarifies that exempt trades may be made during a hold period or seasoning period. 

5. Convertible Securities (sections 2.3 and 2.5 and Appendix D of the proposed Rule)

Comment:  One commentator notes that there is a contradiction between 2.3 of the proposed Rule and 2.13 [sic] of OSC Rule 45-501.  Section 2.16 of OSC Rule 45-501 provides an exemption from the prospectus requirement for a trade of underlying securities acquired in accordance with the terms of convertible securities if the convertible securities were distributed under a prospectus.  Section 2.3 of the proposed Rule places a hold period on these underlying securities.  Another commentator recommends that the language should be clarified regarding the grant of an exemption for resale of underlying securities similar to the existing exemption in section 77(8) of the Securities Act (Nova Scotia).

Response:  The CSA agree and have amended the proposed Rule by adding section 2.12 to provide an exemption from section 2.6 for underlying securities corresponding to section 2.16 of OSC Rule 45-501.  The language regarding section 77(8) of the Securities Act (Nova Scotia) has been clarified.

6. Becoming a Reporting Issuer (sections 2.5, 2.6 and 2.8 of the proposed Rule, now sections 2.5, 2.6 and 2.10 of the Multilateral Instrument)

Comment:  One commentator welcomes the initiative of setting the commencement for the resale hold period at the date the issuer becomes a reporting issuer in a qualifying jurisdiction.  The commentator believes this will result in more certainty among issuers as to the length of the resale hold period and will reduce the need for jurisdiction shopping.

Response:  The CSA agree.

7. Filing of the Forms  (subsection 2.6(2) and 2.8(4) and section 2.7 of the proposed Rule, now subsections 2.6(3) and 2.10(4) and section 2.8 of the Multilateral Instrument)

Comment (i):  One commentator raises the question whether the Forms must be filed in all jurisdictions or only in the jurisdictions where the purchasers reside.  The commentator states that there could be a constitutional issue if filings are required in a jurisdiction where the issuer has no activity or nexus.

Response:  The CSA have clarified in the Multilateral Instrument and the Companion Policy that the Forms are to be filed solely in jurisdictions in which the securities are distributed.  With respect to the filing of Form 45-102F1, the Multilateral Instrument has been clarified so that filing is only required in each jurisdiction in which an issuer has ceased to be a private company or private issuer.

Comment (ii):  One commentator suggests that if filing of the Forms is required in jurisdictions in which no purchasers reside, the filing fees should be waived in these jurisdictions.

Response:  The commentator’s concern has been addressed by the clarifications to the filing requirements of the Forms as discussed above. 

8. Trade by Control Persons (section 2.8 of the proposed Rule, now section 2.10 of the Multilateral Instrument)

Comment:  One commentator notes that the CSA have introduced new requirements regarding trades by pledgees in section 2.8 of the proposed Rule.  The commentator further notes that National 62-101 Control Block Distribution Issues (“NI 62-101”) contains provisions regarding control block trades by pledgees.  The commentator asks the CSA to adopt a more consistent and logical approach regarding section 2.8 of the proposed Rule and NI 62-101, particularly relating to the following issues:

(a) The commentator notes that the requirement in subsection 2.8(1) of the proposed Rule that “if such security was acquired by the lender, pledgee, mortgagee or other encumbrancer in a control distribution” is new and seems to change existing law.

(b) The commentator points out that NI 62-101 still refers to OSC Rule 45-501 regarding hold periods for control block trades by pledgees and recommends that NI 62-101 be amended;

(c) The commentator asks the CSA to confirm that the new requirement for pledgees in section 2.8 of the proposed Rule does not affect the pledgees’ reliance on the provisions in NI 62-101;

(d) The commentator states that in NI 62-101, “seller” and “vendor” are construed as “pledgees”, while in section 2.8 of the proposed Rule, “creditor” and “seller” are separate concepts.  The commentator thinks that the reference to “creditor” and “seller” as different persons may cause problems in items 2.8(2)5. and 2.8(3)5. of the proposed Rule where the creditor must rely on the seller’s knowledge as to whether the issuer is not in default of any requirement of securities legislation.  Similarly, a creditor may have to rely on a seller’s filing of Form 45-102F3 as required in subsection 2.8(5) of the proposed Rule.

Response:

(a) The CSA disagree and the wording in subsection 2.8(1) of the proposed Rule (subsection 2.10(1) of the Multilateral Instrument) has been retained as the trade may be a subsequent resale.

(b) The CSA will recommend that NI 62-101 be amended as a consequential amendment to the implementation of the Multilateral Instrument.

(c) Section 2.8 of the proposed Rule (section 2.10 of the Multilateral Instrument) will not affect a pledgee’s reliance on NI 62-101.

(d) The CSA do not agree that the drafting will result in such confusion.

9. Determining the Time Periods (section 2.9 of the proposed Rule, now section 2.11 of the Multilateral Instrument)

Comment:  One commentator suggests that the same language in subsection 2.9(1) of the proposed Rule regarding amalgamated, merged or continuing corporations should be adopted in subsection 2.9(2) of the proposed Rule so that a merger does not restart the seasoning period for trades by control persons.

Response:  The CSA have not amended the proposed Rule to permit the inclusion of the period of time that the selling security holder had held the securities of one of the amalgamated, merged or continuing issuers in determining the seasoning period for securities acquired under prospectus exemptions for amalgamation, arrangement and statutory procedures because it is not currently contemplated in securities legislation of the jurisdictions implementing the Multilateral Instrument.

10. Trades by Underwriters (section 2.10 of the proposed Rule, now section 2.14 of the Multilateral Instrument)

Comment: One commentator asks the CSA to clarify the hold period for trades by underwriters referred to in section 2.10 of the proposed Rule (now section 2.14 of the Multilateral Instrument).

Response:  The proposed Rule does not change the current law on trades by underwriters.  A first trade of securities acquired under the exemption from the prospectus requirement set out in Appendix H is a distribution regardless of how long the securities have been held.

11. Replacing Seasoning Requirements

Comment: One commentator suggests that the CSA should replace the seasoning requirements in the Rule with the CDNX proposed Exchange Seed Share Resale Restriction Rules (“SSRR”).  SSRR imposes various hold periods from 0 to 3 years depending on the time the securities are held and the price of the securities relative to the price at the issuer’s IPO.

Response:  The CSA believe it is premature to consider the utilization of SSRR by the CSA before SSRR is finalized.  The CSA will reconsider the issue after SSRR is formally adopted by CDNX.

12. Appendix D

Comment:  One commentator states that the legislation reference to “clause 77(1)(f)(iii) as applicable” for Nova Scotia is too vague and asks the CSA to clarify that reference.

Response:  Appendix D and Appendix E have been amended to clarify the reference to clause 77(1)(f)(iii) for Nova Scotia.  Corresponding changes have been made to the Alberta and Ontario references.

E. SPECIFIC COMMENTS ON THE PROPOSED FORMS

1. Form 45-102F1

Comment:  One commentator believes that it is excessive to require an issuer to certify as to beneficial ownership of its securities without a knowledge qualification.

Response: The CSA have amended the form to provide that if, after reasonable effort, it was not possible to identify the beneficial owner, explain why and disclose the registered owner. 

2. Form 45-102F3

Comment (i):  One commentator notes that paragraph 8 of the proposed Form 45-102F3 uses the term “sales” while the current Form 23 in Ontario uses the term “distribution”.  The commentator suggests that “distribution” is more flexible and it should replace “sales” in Form 45-102F3.

Response:  The CSA agree and have amended paragraph 8 of proposed Form 45-102F3 by replacing the word “sold” with “distributed”.

Comment (ii):  One commentator asks the CSA to clarify the type of pre-sale activities allowed in private sales that will not be considered as “acts in furtherance of a trade”.

Response:  The term "distribution" is defined in securities legislation and has been interpreted by securities commissions and by the courts.  The CSA do not consider it necessary to expand upon the meaning of "distribution" in the Instrument.

Comment (iii):  One commentator states that it would be difficult for a creditor to state when the creditor decided to sell the securities as required by paragraph 11 of proposed Form 45-102F3.

Response:  The language has been deleted.

F. SPECIFIC COMMENTS ON THE PROPOSED POLICY

1. Connecting Jurisdiction (section 1.3 of the proposed Policy)

Comment:  One commentator considers that the connecting jurisdiction concept in section 1.3(1) of the proposed Policy is inappropriate as it changes the current state of the law.  The commentator believes the current state of the law should be maintained so that a trade is only subject to the legislation of the jurisdictions in which the purchasers reside.

Response:  The CSA believe it is more appropriate to deal with this issue in proposed MI 72-101 Distributions Outside of the Local Jurisdiction.  Further, see section D7 Filing of the Forms above.

2. Resale of Securities of a Non-Reporting Issuer (section 1.9 of the proposed Policy, now section 1.10 of the Companion Policy)

Comment (i): One commentator suggests that section 1.9 of the proposed Policy should be moved to the Multilateral Instrument.

Response:  The CSA do not consider it necessary to move section 1.9 of the proposed Policy (now section 1.10 of the Companion Policy) to the Multilateral Instrument.  The Companion Policy is designed to provide information relating to the manner in which the provisions of the Multilateral Instrument are intended to be interpreted or applied.  Section 1.10 of the Companion Policy provides information on how certain information required in the Multilateral Instrument is to be obtained and accordingly the CSA consider it appropriate for this section to remain in the Companion Policy. 

Comment (ii): One commentator believes section 1.9 of the proposed Policy (now section 1.10 of the Companion Policy) imposes an unreasonable limit on Canadian residents in reselling foreign securities over foreign markets, if such resales are deemed to be distributions in Canada.

Response:  The CSA believe the restrictions are appropriate.

Comment (iii):  One commentator states it is difficult for sellers to obtain the information required by section 1.9 of the proposed Policy (now section 1.10 of the Companion Policy) to determine the percentage of securities held in Canada, particularly if the information required is of an historical date.

Response:  The CSA do not believe it is unduly difficult for an issuer to obtain the information referred to in section 1.10 of the Companion Policy at the time of the initial distribution.