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Securities Law

NIN 2000/16 - Defaulting Reporting Issuers - OSC Proposed Policy 57-603 [NIN - Rescinded]

Published Date: 2000-05-05
Effective Date: 2000-05-04

On March 31, 2000 the Ontario Securities Commission (the “OSC”) published for comment a proposed OSC Policy 57-603 “Defaults By Reporting Issuers In Complying With Financial Statement Filing Requirements” (the “OSC Proposal”). A full text of the OSC Proposal can be found at the OSC web site at


The OSC Proposal sets out an approach to dealing with a reporting issuer when it defaults on the requirement to file annual or interim financial statements. This approach is significantly different from the OSC’s past approach and the approach of the BCSC.

The OSC Proposal is currently proposed for adoption in Ontario only but should be of interest to British Columbia market participants for two reasons. First, it would affect British Columbia reporting issuers that are also reporting in Ontario. Second, the Canadian Securities Administrators (the “CSA”) are working to develop a National Policy similar to the OSC Proposal.

Section 145(2)(a) of the Securities Rules requires a reporting issuer to file annual financial statements on or before the 140th day after the end of the issuer’s most recent financial year end. Section 144(1) of the Securities Rules require a reporting issuer to file interim financial statements on or before the 60th day after the end of the issuer’s most recent 3, 6, and 9 month interim period.

On January 28, 2000 the CSA published for comment a concept proposal for an integrated disclosure system. This concept proposal would reduce the time to file annual and interim financial statements to 90 and 45 days respectively.

The Commission is concerned by the number of reporting issuers that fail to file their annual and interim financial statements within the time period required by the legislation. In the past three years the increase in the number of defaulting issuers has averaged more than 600 following the May 20 filing deadline for reporting issuers with a December 31 year end. The current practice is that a reporting issuer will be placed on the Commission’s defaulting issuers’ list immediately on default. If the default continues, the Executive Director will issue a cease trade order under section 164(2)(a) of the Securities Act, normally within three to six weeks of the default date.

Highlights of Differences in Approach

There are two major differences between the OSC Proposal and the Executive Director’s current approach to defaulting issuers.

First, the OSC proposal contemplates that where the reporting issuer files certain alternative information, the OSC will generally, for a period of up to two months, impose a cease trade order only on trading in the issuer’s securities by its officers, directors and other insiders.

Second, the OSC Proposal contemplates that, where a reporting issuer does not satisfy the alternative information guidelines the OSC will normally consider the immediate imposition of an issuer cease trade order and may also consider whether enforcement action against the directors and officers is appropriate.

Partial Implementation

The Commission does not have the staffing or procedures to implement a policy similar to the OSC Proposal at this time. However, the Executive Director generally will not issue a cease trade order against the securities of an issuer for failure to file financial statements if the issuer is a reporting issuer in Ontario and is complying with the OSC Proposal. The alternative information filed with the OSC under the OSC Proposal is considered “material to investors” for the purpose of section 153 of the Securities Rules and should be filed with the Commission in the same manner that it is filed with the OSC, i.e. on SEDAR using the cover page for “Material Change Reports” located in the “Continuous Disclosure” category for “Other Issuers”. The Executive Director generally will also issue a cease trade order on trading in the issuer’s securities by an officer, director or other insider of a defaulting issuer if the OSC has issued such an order and the individual or company is a resident of British Columbia.

Request for Comment

The OSC is seeking comment on the OSC Proposal until May 31, 2000. The Commission is also seeking comment on the OSC Proposal in connection with CSA’s development of a National Policy. The Commission would encourage interested parties to direct written comments to

John Stevenson
Ontario Securities Commission
20 Queens Street West
Suite 800, Box 55
Toronto Ontario M5H 3S8

Copies of any submission to the Ontario Securities Commission should also be addressed to the Commission as follows:

Wayne Redwick
Corporate Finance
British Columbia Securities Commission
200-865 Hornby Street
Vancouver British Columbia V6Z 2H4

DATED at Vancouver, British Columbia, on May 4, 2000.

Douglas M. Hyndman

Ref: OSC Policy 57-603
Sections 144, 145, 153 and 164, Securities Rules

This NIN refers to other documents. These documents can be found at the B.C. Securities Commission public website at in the Policy Documents database.