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Securities Law

NIN 94/19 - Draft Amended National Policy Statement No. 41 Security Holder Communication [NIN - Rescinded]

Published Date: 1994-10-14
Effective Date: 1994-10-12


The Canadian Securities Administrators ("CSA") are publishing for comment Draft Amended National Policy Statement No. 41 (the "Draft Policy"). The Draft Policy, like the existing policy on which it is modelled, recognizes the right of non-registered holders of securities to receive the security holder materials and voting rights that reporting issuers are currently required, under corporate law and securities legislation, to provide to registered holders and to exercise the voting rights attached to the securities they own.

The Draft Policy provides a procedure to enable a reporting issuer to send proxy-related materials and audited annual financial statements or annual reports to non-registered holders of its voting securities, and imposes obligations on various parties in the security holder communication process.

Most of the substantive provisions set out in the Draft Policy are derived from National Policy Statement No. 41 (the "Current Policy"), the CSA's existing policy on shareholder (security holder) communication. However, unlike its antecedent, the Draft Policy gives a reporting issuer the right, subject to certain restrictions, to obtain from an intermediary the names, addresses, holdings and preferred language of communication of the non-registered holders of the issuer's securities, where the holders have not given contrary instructions. This change is intended to give reporting issuers greater control over the security holder communication process, including cost, by allowing issuers to communicate directly with non-registered holders of their securities.


The CSA approved the Current Policy on October 28, 1987. The Current Policy was based upon the recommendations of the Joint Regulatory Task Force on Shareholder Communication.

The Task Force was comprised of: securities regulatory authorities from Québec, Ontario and British Columbia; corporate law administrators from Ontario and the federal Corporations Branch; the Toronto and Vancouver Stock Exchanges; and representatives from each of the Canadian Depository for Securities Limited ("CDS"), the Vancouver Stock Exchange Service Corp. (now West Canada Depository Trust Company ("WCDTC")), the Investment Dealers Association of Canada ("IDA") (Québec and Ontario), the Canadian Bankers Association ("CBA"), the Trust Companies Association, the Investment Funds Institute of Canada and the Canadian Corporate Shareholder Services Association ("CCSSA").

The Current Policy was amended in the summer of 1988 by Addendum "A" (now Part XII of the Current Policy) to deal with certain matters, including applications for waivers and exemptions.

An Industry Implementation and Monitoring Committee ("IIMC") was formed in 1988 to assess the implementation of the Current Policy. The IIMC is currently comprised of senior representatives of industry associations, namely the IDA, the CBA, depositories (CDS and WCDTC), the Securities Transfer Association of Canada, the Canadian Group of Thirty, the CCSSA, the Securities Trust Industry Committee, stock exchanges (Montréal Exchange, Toronto Stock Exchange, Alberta Stock Exchange and Vancouver Stock Exchange), the Institute of Chartered Secretaries and Administrators, the Canadian Investor Relations Institute and the Pension Investment Association of Canada. In addition, the IIMC includes a representative from ADP Independent Investor Communications Corporation and the CSA National Policy 41 Committee ("CSA NP 41 Committee").

IIMC Survey, CSA Request for Comments and IIMC Report

In late 1991, the IIMC circulated a questionnaire about the Current Policy to approximately 100 reporting issuers and received 60 responses. The IIMC subsequently developed separate intermediary and non-registered holder questionnaires for distribution. Of 6,325 questionnaires sent to non-registered holders of six reporting issuers, 927 (15%) were returned. Of the non-registered holders that responded, a majority indicated that they valued the right to receive proxy-related materials (73%) and to vote their securities (65%). Most holders that responded (81%) claimed to return proxies sent with meeting material, always (43%) or at least sometimes (38%).

In November 1992, the CSA published a notice that included all three questionnaires and requested comments. Reporting issuers, non-registered holders, intermediaries, depositories and other interested parties were asked to provide specific comments as to deficiencies with the Current Policy, together with proposed solutions. The notice set out a number of issues that had generated greater discussion at the IIMC than others and described the potential for the creation of a single list of beneficial shareholders as being of particular interest to the CSA.

Only a limited number of questionnaires were returned to the CSA in response to the CSA notice. However, general comments that were received included submissions by industry groups representing issuers, intermediaries and others. The CSA would like to thank all persons, companies and industry groups that responded to the IIMC surveys or to the CSA request for comments.

In April of this year, the IIMC reported to the CSA with a list of ten recommended changes to the Current Policy. The CSA conditionally adopted most of the recommendations. The IIMC report also set out five issues on which the IIMC had been unable to reach consensus, and presented alternative solutions. The CSA conditionally adopted a position on each of the issues.

At the request of the CSA, the CSA NP 41 Committee invited members of the IIMC to comment on the CSA's conditional decisions. Comments were received, as late as the third week of June, from the majority of IIMC members or their organizations. A summary of comments that directly related to the conditional positions taken by the CSA was directed to the CSA, with recommendations from the CSA NP 41 Committee where appropriate. The CSA NP 41 Committee obtained further direction from the CSA. The CSA National Policy 41 Committee, comprised of staff from the securities regulatory authorities of Québec, Ontario, Alberta and British Columbia, then undertook to draft amendments to the Current Policy, resulting in the Draft Policy.

Right to list of non-objecting holders

The principal substantive change from the Current Policy is the express right set out in the Draft Policy for a reporting issuer, subject to certain restrictions, to obtain from an intermediary a list of the names, addresses, holdings and preferred language of communication of the non-registered holders of the issuer's securities, where the holders do not object to disclosure of such information (that is, non-objecting holders). Part X of the Current Policy permits a reporting issuer the alternative of delivering security holder materials itself, or through its transfer agent, if it can do so on a less costly basis, and invites the issuer to make arrangements with intermediaries to use this option. In practice, this option has not been freely available to issuers. The CSA have attempted to address this in the Draft Policy.


The CSA recognize that intermediaries may feel constrained, in the absence of written instruction from their clients, from providing to a reporting issuer the names, addresses, holdings and preferred language of communication of clients that are non-responsive holders of securities of the issuer. A requirement for confidentiality of client information may arise under statute, Civil Code (Québec), common law, contract, trust agreement or otherwise. The ability of a reporting issuer to receive a list of the names and other information about the non-registered holders of its securities under the Draft Policy is made subject to confidentiality requirements imposed upon the intermediary by law.

The reporting issuer's right to receive information from an intermediary about the intermediary's clients that are non-registered holders of its securities is also subject to any contrary written instructions that an intermediary may have received from the client concerning release of information. The CSA expect that intermediaries will make vigorous efforts to receive instructions from their clients with respect to confidentiality. Forms B and C to the Current Policy are restated in plain language in Appendix A. Where no instructions are received from a non-registered holder of securities of a reporting issuer, the Draft Policy contemplates that, in Canadian jurisdictions other than the Province of Québec, the holder does not object to disclosure of the holder's name, address and holdings to the issuer (that is, the holder is a non-objecting holder). The holder's preferred language of communication, English or French, would also be disclosed to the issuer. This is consistent with Part V, section 3, of the Current Policy.

Where a non-objecting holder is a resident of the Province of Québec, an intermediary may not disclose to the issuer the holder's name, address or holdings without the holder's express authority.

The CSA support the introduction of legislative provisions to expressly permit intermediaries to disclose to a reporting issuer the names, addresses, holdings and preferred language of communication of non-responsive holders of the issuer's securities, except where the holder has given written instructions to the contrary.

Fees and costs

The fees and costs set out in Appendix D to the Draft Policy reflect the view of the CSA that a reporting issuer should generally bear the basic cost of communicating with non-registered holders of its securities, including costs incurred by an intermediary, except for any costs associated with protecting the confidentiality of the client-intermediary relationship. These costs should be borne by the intermediary and client. This is consistent with the principles set out in the first paragraph of Part X of the Current Policy.

Election to receive security holder materials

Appendix A of the Draft Policy, like Forms B and C in the Current Policy, contemplate that a non-registered holder may elect to receive or not to receive security holder materials from reporting issuers. Where no instructions are received, the Draft Policy contemplates that a non-registered holder does not wish to receive security holder materials.

The CSA recognize that registered holders of securities of an issuer may not have the option, under applicable corporate legislation, to waive delivery of security holder materials. The CSA support amendment of corporate legislation to allow registered holders the option to not receive security holder materials.


Under corporate legislation in most jurisdictions, the right of a security holder to vote at a meeting of security holders may not be restricted to holders as of a record date for the meeting. With limited exception, corporate legislation in Canada does not fix a record date for voting purposes. The absence of a legislated record date may create the potential for over-voting.

For example, under the Canada Business Corporations Act and legislation modelled after it, a security holder that acquires securities after the record date for a meeting may be entitled to vote where the security holder provides evidence of ownership not less than ten days prior to the date of the meeting. Where securities are held in non-registered form, the opportunity for over-voting will occur if both the non-registered holder, as of the record date, and the non-registered holder, post-record date, vote.

Over-voting problems that originate in corporate legislation are outside the jurisdiction of securities regulatory authorities. The CSA support efforts to address these problems through appropriate amendments to corporate legislation.

A potential for over-voting may also arise in circumstances where securities are lent, if the agreement under which the securities are lent does not specify which of the lender or borrower is entitled to voting rights attaching to the lent securities. The CSA understand that the problem may be complicated by the fact that, for the purposes of the Income Tax Act (Canada), a lender of securities may be deemed to have disposed of the lent securities if it expressly gives up the right to vote the securities. While the CSA take no position on which party, the lender or borrower, has or should have the right to vote in respect of lent securities, as a practical measure, the CSA recommend that all parties strive to ensure that proxies or voting instructions not be issued for more than the total number of shares registered on the record date and evidenced by any omnibus proxy.

Request for comments

Written comment on any aspect of the Draft Policy is invited and may be forwarded to the attention of:

CSA National Policy 41 Committee
c/o Robert Hudson
Policy Advisor
British Columbia Securities Commission
1100 - 865 Hornby Street
Vancouver, British Columbia
V6Z 2H4

(Facsimile: (604) 660-2688)

Comment letters should be submitted prior to December, 14, 1994. Five copies should accompany the original letter.

In addition to general comment on the Draft Policy, the CSA is seeking specific comment on the following:

(a) Permitted uses by a reporting issuer of the list of names, addresses, holdings and preferred language of communication of its non-registered holders - The Draft Policy restricts this use to mailing proxy-related materials and audited annual financial statements or annual reports. The CSA request comment on the issue of extending use of the list to "corporate governance" purposes.

(b) Fees and costs - The fees set out in Appendix D to the Draft Policy include a fee for obtaining a list containing information about non-objecting holders. The fee does not distinguish between the use of the list for mailing of security holder materials that include proxy-related materials or the use of such a list for other than a proxy mailing (e.g., where audited annual financial statements or an annual report are sent separately from proxy-related materials).

The CSA request comment on whether the fees set out in Appendix D to the Draft Policy should differentiate between proxy and non-proxy mailings, with the former being set at a higher level than the latter.

(c) Format of communication - The Draft Policy does not mandate a format for electronic communication from an intermediary to a reporting issuer of the list of names, addresses, holdings and preferred language of communication of non-registered holders of securities of the issuer. Although the CSA encourage all parties to develop and use a standard industry format, the Draft Policy does not require any particular format. The CSA request comment on whether a format should be mandated and, if so, who should develop that format.

(d) Application where non-registered holders reside outside of Canada - The Draft Policy, like the Current Policy, contemplates that a reporting issuer will send security holder materials to non-registered holders of their securities wherever they reside. Where CDS and WCDTC, in response to an early search, provide a reporting issuer with the names of participants, intermediaries or nominees of intermediaries that have an address outside of Canada, the issuer is required to deliver search cards to those participants, intermediaries and nominees.

Although such participants, intermediaries or nominees may follow the requirements of the Draft Policy, the Draft Policy may not by its terms be directly applicable. The CSA are seeking comment on how to encourage communication with non-registered holders that are resident in the United States or elsewhere outside of Canada.

(e) Reasonableness of April 1, 1995 implementation date - The Draft Policy establishes an implementation date of April 1, 1995, based on the latest date that a reporting issuer may file its notice of meeting and record dates. The CSA are seeking comment on the reasonableness of the proposed implementation date.

Where they are able to, commentators are encouraged to provide draft wording for any change that they may suggest be made to the Draft Policy.

Comment letters submitted in response to this request 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 for purposes of finalizing the Draft Policy whether or not confidentiality is requested. Accordingly, although comment letters for which confidentiality is requested will not be placed on the public file, freedom of information legislation may require the securities regulatory authorities in certain jurisdictions to make the comment letters available. Persons submitting comment letters should be aware that the press and members of the public may be able to obtain access to any comment letter.

For further information please contact any of the following:

Diane Joly                                                                                             Robert F. Kohl
Chef du service de Solicitor, l'information continue                     Capital Markets
Commission des valeurs mobilières du Québec                        Ontario Securities Commission
(514) 873-5326                                                                                    (416) 593-8233

Glenda A. Campbell                                                                           Robert Hudson
Senior Legal Counsel                                                                        Policy Advisor
Alberta Securities Commission                                                       British Columbia Securities Commission
(403) 427-5201                                                                                   (604) 660-4883

DATED at Vancouver, British Columbia, on October 12, 1994.

Douglas M. Hyndman