NIN 94/14 - Proposed Amendments to the Securities Act [NIN - Rescinded]

A package of proposed amendments to the Securities Act is being published for public comment. These proposed amendments implement part of the Government's response to the Matkin Report. These amendments are intended

- to strengthen the regulation of underwriting and promotional activity (see ss. 1(1) - "investor relations activities", 35,
36.1, 48.1 and 144)
- to authorize the Commission to conduct compliance reviews of self regulatory bodies (see s. 15.1)

Section 25 of the Securities Amendment Act, 1990, which amends section 35 of the Securities Act, has not yet been proclaimed. As section 35 is now proposed to be subject to further amendment, the text of the unproclaimed amendment is shown in italics.

Request for Comments

Direct written comments by November 17, 1994 to:

Susan Adams
A/Director
Policy and Legislation
British Columbia Securities Commission
1100 - 865 Hornby Street
Vancouver, B.C. V6Z 2H4

Comment letters submitted in response to Requests for Comment are placed in the public file and form part of the public record, unless confidentiality is requested. Although comment letters requesting confidentiality will not be placed on the public file, freedom of information legislation may require the Commission 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.


DATED at Vancouver, British Columbia, on October 5, 1994.

"Douglas M. Hyndman"
Chair

Attachment

CERTAIN PROPOSED AMENDMENTS TO THE SECURITIES ACT

Explanatory Notes

Section 1(1) "investor relations activities"

Defines "investor relations activities" to provide a basis for the Commission to regulate this activity in sections 35, 36.1 and 144 of the Securities Act and 134.2 of the Securities Regulation.

Section 1(1) and wherever it appears

Substitutes "executive director" for "superintendent".

Section 15.1

Authorizes the executive director to conduct compliance reviews of the Pacific District of the Investment Dealers Association of Canada and the Vancouver Stock Exchange, during normal business hours, to check compliance with the Securities Act, the Securities Regulation and any decision made under the Act or Regulation.

Section 35

Imposes restrictions on representations that can be made by persons engaging in investor relations activities and specifically prohibits a person involved in investor relations or trading from making a misrepresentation.

Interpretation

1. (1) In this Act, ...

"investor relations activities" means any activities or communications, orally or in writing, by or on behalf of an issuer or a security holder of the issuer that are intended to stimulate or would reasonably be expected to stimulate awareness of or interest in the issuer or its securities.

1. (1) and wherever it appears

Replace "superintendent" with "executive director".

Compliance review of self regulatory body or exchange

15.1 (1) The executive director may appoint in writing a person to review, examine and audit the records, business and conduct of a self regulatory body or exchange.

(2) A person conducting a compliance review under this section may, on production of the appointment,

Representations prohibited

35. (1) No person, while engaging in investor relations activities or with the intention of effecting a trade in a security,

(a) shall represent that the person or another person will

(i) resell or repurchase the security, or
(ii) refund all or any of the purchase price of
the security,

(b) shall give an undertaking relating to the future value or price of the security, ^
(c) shall represent, unless the person obtains the written permission of the ^ executive director,

(i) that the security will be listed and posted for trading on an exchange, or
(ii) that application has been or will be made to list and post the security for trading on an exchange, or

(d) shall make a misrepresentation.

Section 36.1

Requires disclosure of the relationship between an issuer and a person engaged in investor relations activities. This will assist investors in assessing the objectivity of information received from a person engaged in investor relations activities.

Section 48.1

Imposes a positive obligation on directors, underwriters and others that sign a certificate to conduct due diligence reviews. More detailed requirements are contained in the Securities Regulation and Local Policy Statement 3-22 on registration requirements.

(2) Subsection (1) (a) does not apply to a representation

(a) in respect of a security that carries an obligation of the issuer to redeem or purchase or a right of the owner to require redemption or purchase, or
(b) contained in a written agreement where the security involved has an aggregate acquisition cost in excess of a prescribed amount.

(3) No person, with the intention of effecting a trade in an exchange contract,

(a) shall represent that the person or another person will

(i) refund all or part of any margin put up or premium paid in respect of the exchange contract, or
(ii) assume all or part of the obligation under the exchange contract, or

(b) shall give an undertaking relating to the future value of the exchange contract.

Disclosure of investor relations activities

36.1 (1) An issuer or security holder that has retained a person to engage in investor relations activities, or knows or ought reasonably to know that a person is engaged in investor relations activities on behalf of the issuer or a security holder of the issuer, must immediately disclose that fact to anyone who inquires.

(2) A person engaged in investor relations activities, and an issuer or security holder on whose behalf the investor relations activities are undertaken, shall ensure that every record disseminated by the person engaged in investor relations activities clearly discloses, in a conspicuous position, that the record is issued by or on behalf of the issuer or security holder.

Due diligence

48.1 Before a certificate under section 49 or 50 is signed,

(a) the directors of the issuer and any other person that signs the certificate under section 49, and
(b) the underwriter that signs the certificate under section 50

shall each conduct a reasonable investigation to provide reasonable grounds for a belief that there has been no misrepresentation in the prospectus.

Section 144(1)(d)-(e)

Enables the Commission or executive director to prohibit a person from engaging in investor relations activities, which are a common source of abuse in the local securities market.

Enables the Commission or executive director to prohibit a person engaged in investor relations activities from disseminating information to the public and to require the person to disseminate information or amend information being disseminated.

Enforcement orders

144. (1) Where the commission or the ^ executive director considers it to be in the public interest, the commission or the ^ executive director, after a hearing, may order ...

(i) resign any position that the person holds as a director or officer of an issuer, ^

(ii) is prohibited from becoming or acting as a director or officer of any issuer, or

(iii) is prohibited from engaging in investor relations activities