CSA 93/02 - Bought Deals [CSA Notice - Rescinded]

Published Date:	1993-06-11

In July 1992, the Corporate Finance Committee of the Investment Dealers Association of Canada (the "IDA") provided the Canadian Securities Administrators (the "CSA") with specific proposals to modify the bought deal financing technique (the "IDA Proposals"). The CSA published the IDA Proposals in August 1992, together with a CSA Notice requesting comments on bought deal financings (the "Request for Comments"). The Request for Comments indicated that it would be helpful for the CSA in conducting their examination of bought deals to have the benefit of the views of issuers, dealers, retail, institutional and mutual fund investors and other interested parties on bought deals, in general, and on the IDA Proposals, in particular. In addition, commentators were strongly encouraged to provide, if at all possible, statistical information relating to bought deals. The CSA received 46 comment letters in response to the Request for Comments, however, they received virtually no comment letters from institutional investors, mutual funds and retail investors. In addition, the CSA received very little statistical information from commentators concerning various issues related to bought deals, including retail participation and the cost of capital to issuers.

At this stage of their review of bought deal financings, staff of each of the CSA (collectively, "staff") have determined that it is important to clarify whether certain activities that may be undertaken to facilitate the distribution of securities and limit underwriting risk ("pre-marketing activities") are contrary to or inconsistent with the provisions of securities legislation of each of the provinces and territories of Canada ("securities legislation"). Accordingly, to address the uncertainties of market participants with respect to pre-marketing activities in the context of bought deals, the CSA are publishing contemporaneously with this notice a CSA notice regarding such pre-marketing activities (the "Pre-Marketing Notice"). The Pre-Marketing Notice summarizes staff's conclusions

^{1 In the Pre-Marketing Notice, the staff of each province and territory set out their views with respect to the securities legislation of theirown jurisdiction only.}

as to the legality of pre-marketing activities in the context of bought deals. The CSA are of the view that dealers should develop, implement, maintain and enforce procedures to ensure that pre-marketing activities that are contrary to securities legislation are not engaged in by their directors, officers, employees and agents. The CSA understand that staff are considering a compliance mechanism for monitoring compliance with the Pre-Marketing Notice.

The CSA understand that staff will not consider the marketing activities of dealers in the context of special warrant transactions to be inappropriate if such activities are not altered from current practice. This would not be the case if the private placement of the warrants and the exercise of the warrants occur in such close proximity that it could reasonably be considered that the special warrant offering is a public distribution of the securities into which the special warrants are convertible.

In light of staff's legal conclusions regarding pre-marketing activities set out in the Pre-Marketing Notice, which may affect the views of interested parties on the IDA Proposals, the CSA are offering interested parties a further opportunity to comment on the IDA Proposals, and in particular on the necessity or desirability for the six hour delay period proposed by the IDA, before the CSA complete their review of bought deals. Comments should be in writing and should be submitted to the address indicated below on or before July 31, 1993.

Canadian Securities Administrators
Corporate Finance Committee
c/o Secretary, Ontario Securities Commission
Ontario Securities Commission
Suite 800, Box 55
20 Queen Street West
Toronto, Ontario
M5H 3S8

Comment letters submitted in response to this CSA Notice will be placed in the public file in certain jurisdictions and form part of the public record, unless confidentiality is requested. Comment letters will be circulated among the securities regulatory authorities whether or not confidentiality is requested. Accordingly, although comment letters requesting confidentiality will not be placed in the public file, freedom of information legislation may require the securities regulatory authorities in certain jurisdictions to make comment letters available. Persons submitting comment letters should therefore be aware that the press and members of the public may be able to obtain access to any comment letter.

June 11, 1993