BCN 2001/63 - Advance Notice of Multilateral Instrument 45-102 Resale of Securities and Related Documents [BCN - Rescinded]
Multilateral Instrument 45-102 Resale of Securities, Form 45-102F1, Form 45-102F2 and Form 45-102F3 and Companion Policy 45-102CP (collectively, the “documents”) are initiatives of the Canadian Securities Administrators (“CSA”).
If we receive the required government approval, we intend to make the instrument and forms as a rule, and to adopt the policy, on or before November 30, 2001. We will publish them at that time. We expect the documents to come into force on November 30, 2001, in all jurisdictions except Quebec (the “adopting jurisdictions”).
The Ontario Securities Commission (“OSC”) has adopted the documents, subject to ministerial approval of the instrument and forms, effective November 30, 2001 and is publishing them in the September 14, 2001 issue of the OSC Bulletin. The full text is on the OSC website at www.osc.gov.on.ca.
Rescissions and Consequential Amendments
When the documents come into force, the following will be repealed:
- 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 Notice of Intention to Distribute Securities, and
- sections 127, 128(d), 132 and 140 to 143 of the Securities Rules.
Consequential amendments will also be made to sections 1(1), 75(1), 78(3) and 136 of the Securities Rules. We will shortly publish for comment further consequential amendments to National Instrument 62-101 Control Block Distribution Issues.
The Commission, together with the other adopting jurisdictions, published for comment a draft of the documents on September 8, 2000 (see NIN#2000/39). Nine submissions were received on the published draft. The adopting jurisdictions have considered the comments and the final versions of the documents 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.
On April 20, 2001, we published advance notice that, subject to government approval, we expected to make the instrument and forms as rules on or before June 29, 2001 (see BCI#2001/22). We later withdrew them to deal with some implementation issues (see BCI#2001/34). We have now finalized and resubmitted the documents.
Substance and Purpose of the Documents
The instrument prescribes when a purchaser of securities under exemptions from the prospectus requirement can resell those securities. It also prescribes when a distribution of securities from a control block can be made. It harmonizes these provisions in the adopting jurisdictions and reduces the restricted period where a reporting issuer provides the market with current information concerning its affairs.
The restrictions imposed on resale depend on a variety of factors including
- the prospectus exemption under which the securities were distributed,
- if the securities were distributed under a prospectus exemption in an open jurisdiction,
- if the issuer is a qualifying issuer under the instrument,
- if the issuer is a SEDAR filer,
- if the issuer is a reporting issuer in the jurisdiction of the purchaser, and
- if the resale is being made by a control person (“control distribution”),
If the securities were acquired under an exemption listed in Appendix D to the instrument, one of the restrictions is that the seller cannot resellthe securities for a specified period of time (a “private placement exemption”). If the securities were acquired under an exemption listed in Appendix E, one of the restrictions is that the issuer of the securities is required to have been a reporting issuer for a specified period of time (a “seasoning exemption”).
With the exception of the resale restrictions for control distributions, the resale restrictions in the instrument do not apply in Manitoba, New Brunswick, Prince Edward Island or the Yukon Territory. They are open jurisdictions that do not impose resale restrictions on securities distributed under a prospectus exemption.
Qualifying Issuer Status and Control Distributions
Under the instrument, securities distributed under private placement or seasoning exemptions by an issuer that is not a qualifying issuer are generally subject to a 12 month restricted or seasoning period, and in the case of a control distribution, a six month restricted period. For an issuer that is a qualifying issuer on the distribution date, the restricted or seasoning periods are reduced to four months.
A qualifying issuer is 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 a current AIF filed on SEDAR 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
- a class of securities outstanding that hasan approved rating.
SEDAR Filer or a Reporting Issuer in the Jurisdiction of the Purchaser
Under the instrument, securities acquired under a private placement exemption may be resold after the expiry of the applicable restricted period if, among other conditions, either (i) the issuer is a SEDAR filer, or (ii) the issuer is a reporting issuer in the jurisdiction of the purchaser. This means that a purchaser in a jurisdiction where the issuer is not a reporting issuer will be able to resell the securities if 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 an issuer is not a SEDAR filer and not a reporting issuer in the jurisdiction of the purchaser, the securities acquired by the purchaser will be subject to an indefinite restricted period.
Under the instrument, securities acquired under a seasoning exemption may be resold if 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.
Summary of Significant Changes to the Documents
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. In the proposed instrument published for comment, an issuer had 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 before an issuer becomes a reporting issuer by completing its initial public offering (“IPO”). Employees who acquire securities under prospectus exemptions prior to an issuer’s IPO should not be required to hold their securities longer than employees who acquire securities under prospectus exemptions after its IPO. Consequently, a provision has been added so that employees can resell securities of a qualifying issuer, regardless of when they acquired them, if the issuer is and has been a reporting issuer in any of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec or Nova Scotia for at least four months. This also recognizes the value of employee stock options, security purchase plans and other similar employee incentives in issuers’ business development strategies prior to an IPO.
3. Resale Conditions for Insiders and Officers of the Issuer
The instrument has been amended to include a less onerous resale condition for selling security holders who are insiders or officers of an issuer. In the proposed instrument published for comment, a selling security holder was required to have “reasonable grounds to believe that the issuer is not in default of any requirement of securities legislation”. This wording meant the selling security holder must have evidence to believe there has been no default. The proposed instrument now requires that a selling security holder 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
To harmonize existing provisions in securities legislation, an exemption from the resale restrictions has been added for trades of securities of an offeror issued in connection with a take over bid, or issuer bid, if a securities exchange take over bid circular or issuer bid circular for those securities was filed by the offeror on SEDAR and the offeror was a reporting issuer at the time securities are taken up and paid for under the take over bid or issuer bid.
5. Trades in an Underlying Security
To reflect existing provisions in securities legislation in a number of jurisdictions, exemptions from the resale restrictions have been added for 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 or issuer bid circular.
Questions may be referred to:
Senior Legal Counsel, Exemptions & Orders
British Columbia Securities Commission
or (800) 373-6393 (in B.C.)
DATED September 11, 2001.
Douglas M. Hyndman
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.
LIST OF COMMENTATORS ON
MULTILATERAL INSTRUMENT 45-102
FORMS 45-102F1, 45-102F2 AND 45-102F3
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.
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
RESPONSE OF THE CANADIAN SECURITIES ADMINISTRATORS
On September 8, 2000, certain members of the CSA published the proposed Instrument for comment. The CSA specifically requested comments on the following two issues:
(i) the requirement that a legended certificate representing the securities distributed 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 Instrument. The CSA have considered all submissions received and thank 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 Multilateral Instrument)
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 restricted 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 the 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 the applicable restricted periods and of ensuring more effective regulation of the exempt market. The CSA maintain the legend requirement in 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 in 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 system. 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 on resale under the rules of The Toronto Stock Exchange Inc. (the “TSE”) and other stock exchanges even after the applicable restricted 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 restricted periods have expired. In addition, British Columbia and the CDNX have legending requirements and have not experienced any problems relating to the resale after the expiry of the applicable restricted periods.
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.
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 Restricted Periods for Investment Grade Securities
No comment was received on this issue. The CSA plan to retain the four-month restricted period for investment grade securities.
C. GENERAL COMMENTS
Comment (i): The commentators are generally very supportive of the proposed Instrument. Four commentators expressed their support of 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 Instrument and believes that they will greatly clarify the restricted 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 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 Instrument would provide issuers with an incentive to improve their continuous disclosure.
Response: The CSA agree and believe that the shorter restricted 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 MULTILATERAL INSTRUMENT
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 Instrument. 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 Instrument.
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 “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 and have not amended 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.
3. Definition of "Qualifying Issuer"
Comment (i): One commentator supports the adoption of the concept of “qualifying issuer” and believes the shorter restricted 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 restricted 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 the 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 the investors.
4. Application to First Trades (sections 2.3, 2.4 and 2.11 of the proposed Multilateral Instrument, 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 Multilateral Instrument (now sections 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: The CSA agree and have amended sections 2.3, 2.4 and 2.14 to refer to first trades. Further, subsection 1.2(2) of the Companion Policy clarifies that exempt trades may be made during a restricted period or seasoning period.
5. Convertible Securities (sections 2.3 and 2.5 and Appendix D of the proposed Multilateral Instrument)
Comment: One commentator notes that there is a contradiction between section 2.3 of the proposed Multilateral Instrument and section 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 Multilateral Instrument places a restricted 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 Multilateral Instrument by adding subsection 2.10 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 Multilateral Instrument)
Comment: One commentator welcomes the initiative of setting the commencement for the resale restricted period at the date the issuer becomes a reporting issuer in a jurisdiction listed in Appendix B. The commentator believes this will result in more certainty among issuers as to the length of the resale restricted period and will reduce the need for jurisdiction shopping.
Response: The CSA agree.
7. Filing of the Forms (subsections 2.6(3) and 2.8(4) and section 2.7 of the proposed Multilateral Instrument, now subsections 2.6(4) and 2.8(4) and section 2.7 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 Form 45-102F3 is to be filed solely in jurisdictions in which the securities are distributed and with the exchange in Canada on which the securities that are the subject of the trade are listed. With respect to the filing of Form 45-102F1, the Companion Policy 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 and section 2.7 of the Multilateral Instrument has been implemented. Form 45-102F2 must be filed in each jurisdiction in which securities have been distributed to purchasers and section 2.7 of the Multilateral Instrument has been implemented. Section 2.7 of the Multilateral Instrument has been implemented in Alberta, British Columbia, Newfoundland, Northwest Territories, Nova Scotia, Nunavut, Ontario and Saskatchewan.
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 Multilateral Instrument)
Comment: One commentator notes that the CSA have introduced new requirements regarding trades by pledgees in section 2.8 of the proposed Multilateral Instrument. 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 Multilateral Instrument 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 Multilateral Instrument 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 restricted 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 Multilateral Instrument 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 Multilateral Instrument, “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 Multilateral Instrument 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 Multilateral Instrument.
(a) The CSA disagree and the wording in subsection 2.8(1) of the proposed 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) The CSA will recommend that section 2.2 of NI 62-101 regarding pledgees be deleted as it is unnecessary given subsection 2.9(3) of the Multilateral Instrument.
(d) The CSA do not agree that the drafting will result in such confusion.
9. Determining Time Periods (section 2.9 of the proposed Multilateral Instrument)
Comment: One commentator suggests that the same language in subsection 2.9(1) of the proposed Multilateral Instrument regarding amalgamating, merged or continuing corporations should be adopted in subsection 2.9(2) of the proposed Multilateral Instrument so that a merger does not restart the seasoning period for trades by control persons.
Response: The CSA have not amended the proposed Multilateral Instrument to permit the inclusion of the period of time that the selling security holder had held the securities of one of the amalgamating, 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 Multilateral Instrument, now section 2.13 of the Multilateral Instrument)
Comment: One commentator asks the CSA to clarify the restricted period for trades by underwriters referred to in section 2.10 of the proposed Multilateral Instrument (now section 2.13 of the Multilateral Instrument).
Response: The proposed Multilateral Instrument does not change the current law on trades by underwriters. A trade of securities acquired under the exemption from the prospectus requirement set out in Appendix H is a distribution regardless 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 Multilateral Instrument 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 if 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 has been amended to clarify the reference to clause 77(1)(f)(iii) for Nova Scotia. Corresponding changes have been made to the Alberta, Newfoundland 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, the filer is required to 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 COMPANION POLICY
1. Connecting Jurisdiction (section 1.3 of the proposed Companion Policy)
Comment: One commentator considers the connecting jurisdiction concept in subsection 1.3(1) of the proposed Companion 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: Section 1.3 of the proposed Companion Policy has been deleted. 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 Companion Policy, now section 1.14 of the Companion Policy)
Comment (i): One commentator suggests that section 1.9 of the proposed Companion Policy should be moved to the Multilateral Instrument.
Response: The CSA do not consider it necessary to move section 1.9 of the proposed Companion Policy (now section 1.14 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 1.14 of the Companion Policy provides guidance 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 Companion Policy (now section 1.14 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 information required by section 1.9 of the proposed Companion Policy (now section 1.14 of the Companion Policy) to determine the percentage of securities holding in Canada, particularly if the information required is of a historical date.
Response: The CSA do not believe it is unduly difficult for an issuer to obtain the information referred to in section 1.14 of the Companion Policy at the time of the initial distribution.