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Securities Law

NIN 95/08 - Task Force on Operational Efficiencies in the Administration of Securities Regulation -- Interim Report [NIN - Rescinded]

Published Date: 1995-01-27
Effective Date: 1995-01-26

In NIN#94/7, the British Columbia Securities Commission announced that the Canadian Securities Administrators ("CSA") had agreed to encourage the formation of a task force to maximize operational efficiencies in the administration of securities regulation (the "Task Force"). The Task Force has prepared an Interim Report. The Commission is publishing the Interim Report of the Task Force in this edition of the Weekly Summary.

The Task Force has released the interim report with a view to encouraging public discussion, consultation and further input from concerned members of industry and the investing public.

The Task Force invites additional submissions with suggestions as to practical steps that can be taken by Canadian securities regulatory authorities, under existing laws, to render securities regulation more consistent, more predictable, more cost-effective and more timely. All submissions should be sent to:

William L. Hess, Q.C.
Chair, Task Force on Operational Efficiencies in the
Administration of Securities Regulation
c/o McCarthy Tetrault
Suite 3200, 421 - 7th Avenue S.W.
Calgary, Alberta
T2P 4K9
Telecopier: (403)260-3501

Submissions must be received by March 15, 1995.

DATED at Vancouver, British Columbia, on January 26, 1995.

Douglas M. Hyndman

Ref: NIN#94/7



December 31, 1994

The Canadian Securities Administrators (the "CSA"), the organization of the provincial and territorial securities regulators, constituted the Task Force on Operational Efficiencies in the Administration of Securities Regulation (the "Task Force") with members drawn from the securities industry and related professional communities.

The mandate of the Task Force is to catalogue and prioritize opportunities for the maximization of operational efficiencies in the administration of securities regulation in Canada, with a view to assisting the CSA in its goal of streamlining regulatory administration, addressing inefficiencies while enabling regulators to fulfil their legislated mandates.

The members of the Task Force are:

William L. Hess, Q.C. Chairman,
Chair of the Task Force
Alberta Securities Commission,

Charles Caty President and Chief Executive Officer,
Investment Dealers Association of Canada,

Jean-Pierre Desrosiers, FCA Partner,
KPMG Poissant Thibault - Peat Marwick Thorne,

Leon Getz, Q.C. Partner, Getz Karby,
Barristers and Solicitors,

John L. Howard, Q.C. Senior Vice President,
Law and Corporate Affairs,
MacMillan Bloedel Limited,

Cally Jordan Professor,
Faculty of Law,
McGill University,

Gérald A. Lacoste, Q.C. President and Chief Executive Officer,
The Montreal Exchange,

Philip J. Olsson Vice President and Director,
Head Global Investment Banking,
RBC Dominion Securities Inc.,

Richard A. Shaw, Q.C. Partner,
McCarthy Tétrault,

The law firm McCarthy Tétrault is providing legal resources to the Task Force from its offices in Montreal, Toronto, Calgary and Vancouver.


Jurisdiction and Objectives

Jurisdiction over securities law and regulation in Canada has been exercised by the provinces. Securities markets in Canada, however, transcend jurisdictional boundaries and are characterized by significant and accelerating technological and product innovation.

Canadian securities law and regulation is driven by two primary goals, investor protection and the fostering of efficient capital markets. Legislators and securities administrators have attempted to achieve these objectives, while responding to innovation, through increasingly complicated rules and administrative procedures. The resources available to regulators have not always kept pace with demands of market participants for more timely and flexible response.

Administrative Responses

Securities administrators recognize the merits of coordinated effort, as evidenced by the formation of the CSA. Practical evidence of coordination is found in the National Policy Statements of the CSA governing such matters as national filing and clearance of prospectuses and the "prompt-offering qualification" or "POP" system for multi-jurisdictional clearance of senior issuers' short form prospectuses.

The CSA recognizes that further operational streamlining is desirable from the perspective of market participants, the investing public and regulators themselves.

Areas of Criticism

Major criticisms of the current regulatory system centre on three general areas:

1. "Paper Burden": The first area of criticism centres on filing requirements, sometimes characterized as excessive, inconsistent between jurisdictions and not useful to the investing public. This "paper burden" involves:

(a) material required in multiple jurisdictions to qualify an issuer or a security (for example, an offering memorandum or prospectus and many supporting documents) or to register brokers, dealers and all of their partners, directors and officers; and

(b) ongoing disclosure, including periodic financial statements, annual registration updates, annual information forms and insider trading reports.

2. Timely Response: Issuers increasingly seek rapid access to markets. Even within one jurisdiction, issuers may be discouraged by the time required for a Commission to understand, review and comment on materials, especially where new or complex transactions are involved. Timely clearance obviously becomes a bigger problem where the same process must be repeated in a number of jurisdictions, especially when rules, policies or views of Commission staff responsible for review differ,

3. Enforcement: Concerns here focus on difficulties inherent in local enforcement of rules affecting increasingly national or international securities markets. From one perspective there is concern at inadvertent violation of rules that differ between provinces. From another perspective there is concern that wrongdoers can avoid the consequences of securities law violations by simply carrying on in another province.

Recent Initiatives

Securities regulators and others have launched a number of initiatives recently, most of which have in common the goal of reducing inefficiencies:


In an important new development, the computer-based System for Electronic Document Analysis and Retrieval -- "SEDAR" -- will begin testing early in the new year. SEDAR is designed to permit electronic filing of documents with securities commissions to create an electronic database of all public material so filed and to link electronically all exchanges, issuers, securities administrators and other participants in Canadian securities markets.

Using SEDAR, the filing requirements of all twelve CSA jurisdictions will be satisfied by a single electronic filing. The public electronic database will permit more rapid and efficient assess to desired information by more market participants.

The most immediate advantage should be logistical, with the elimination of inefficiencies in the assembly, delivery (in multiple copies and in multiple jurisdictions), storage and retrieval of paper documents. By permitting more rapid and selective access to information on file, SEDAR should also facilitate more rapid processing and turnaround of a variety of registrations, clearances and rulings, as well as permitting ongoing monitoring by applicants of the progress of such processes.

While monitoring SEDAR during its introductory period, the CSA will consider whether use of SEDAR should be made mandatory for certain types of filings in order to enhance the system database and system efficiency.

The development and introduction of SEDAR reflects a significant dedication of effort and funding by the CSA with a view both to streamlining regulatory administration and facilitating assess to information. It is intended, nonetheless, that the enhanced speed and efficiency in document filing and access offered by SEDAR will be available to issuers at a cost not greater than currently borne, on average, by issuers using current procedures (including the assembly and delivery of multiple hard copies of documents).

2. Selective Review

The initiative of the Ontario Securities Commission for selective review of prospectuses, now in effect, reduces on a selective basis the regulatory scrutiny of prospectus and other filings by qualifying issuers. Issuers are not relieved of the obligation to prepare documents with care, nor does it alter legal liability.

The goal, which the Task Force endorses, is to allow regulators to apply limited resources where they are most needed, while expediting their work generally.

3. Expedited Review

Under this joint initiative of a number of securities commissions, eligible issuers may elect expedited review whereby one commission is the designated jurisdiction for purposes of a multi-jurisdiction prospectus filing. Other jurisdictions are to be kept advised of the filing process but will generally rely on the designated jurisdiction to review the filing.

The Task Force endorses this initiative, which it welcomes in particular as a demonstration of the willingness of securities regulators to rely upon the expertise of their counterparts in other Canadian jurisdictions. The Task Force considers that this significant step in cooperative effort points the way to further cooperation and streamlining of Canadian securities administration, and hopes that Québec will soon be a full participant in this and similar initiatives.

4. Registration Residency Restrictions

Proposals are under consideration that would ease local residency requirements for registrations of certain classes of securities dealers that have been characterized as a hindrance to interprovincial marketing of some financial products. The Task Force approves of the direction of these proposals, which would also involve reliance by securities regulators upon the expertise of their counterparts in the Canadian home jurisdiction and upon the self-regulatory organizations.

5. Rule-making Authority

The Ontario legislature has granted rule-making authority to the Ontario Securities Commission. In British Columbia, the responsible Minister has announced her government's intention that similar powers be granted to the British Columbia Securities Commission. It is reasonable to expect that similar developments will take place in other provinces.

This development has resulted in part from court challenges to the manner in which commissions have exercised their authority by way of policy statement. While the Task Force applauds actions taken by legislatures to substantiate the authority of securities commissions to regulate the capital markets, the Task Force recognizes that the system of National Policy Statements has contributed greatly to efficiency of Canadian capital markets. A new system must find a way to operate just as effectively, which may be a challenge given the possibility of long lead times and increased governmental involvement suggested by the Ontario legislation.

It would appear that significant resources must be dedicated to the transitional effort to ensure that the interprovincial effort remains coordinated and effective. To the extent that other provinces follow the Ontario approach, responsible Ministers and their departmental staff must devote the time necessary so that appropriate rules are promulgated in a timely and coordinated fashion. Suggestions for a permanent secretariat of the CSA and more formal coordination among responsible Ministers should be considered.

6. Appropriate Funding

The Task Force notes that in order for operational efficiencies to be maximized, the regulatory effort must be adequately funded. As it currently stands, a large percentage of the fees charged to the securities industry and investors, amounting to tens of millions of dollars, is being directed to the general revenue funds of provinces while allocations to securities regulators are declining. The regulators are being deprived of funding that is essential to Canada's capital markets. The effectiveness of securities regulation is in jeopardy of deterioration due to fiscal restraints being imposed by governments at a time when the fees they are receiving are at record levels.

The funding issue is crucial to several elements of this interim report. As noted above, rule-making will require additional resources, both on a transitional and an ongoing basis. Additional professional expertise will also be required for such tasks as developing enhanced early-warning preventative mechanisms and conducting increasingly complex investigations. As well, many commentators see the implementation and extension of electronic filing as essential to administrative efficiency, yet there is no doubt that developments in this area by the CSA have been hindered by resource constraints.

Efficient regulation of the capital markets requires that the commissions be able to hire the best available professional expertise and be able to invest in state of the art technology. Although most industry participants would like to see rationalization and reduction in the total level of fees, we believe that this can only be addressed after the appropriate level of funding has been resolved.

Submissions to the Task Force

The Task Force published a request for comments in June, 1994. Members of the Task Force have also spoken publicly on the Task Force's mandate, and have invited submissions.

To date, the Task Force has received eleven written submissions from public corporations, investment and fund managers, a law firm and associations representing investment dealers and securities lawyers. The Task Force is encouraged at the interest shown in this initiative and at the high quality of the submissions received to date.

Suggestions Received by the Task Force

The following is a brief summary of suggestions received by the Task Force to date. More detailed summaries of each of the written submissions received to date are annexed in the Appendix to this interim report.

With a view to facilitating analysis, and in furtherance of its mandate to catalogue opportunities for achieving greater operational efficiencies, the suggestions are grouped into categories. Many submissions addressed a variety of issues and there is necessarily considerable overlap, a reflection of the fact that many of the recommendations would serve more than one purpose or more than one sector.

Ongoing Disclosure

- a general exemption, where necessary, to relieve individuals of obligations to report as "insiders" of a public corporation, to the extent that the obligations arise only because they are directors or officers of another corporation that itself is deemed (on the basis of as little as a 10% intercorporate shareholding) to be an insider of the public corporation.

- non-financial disclosure requirements -- the example cited involved the rules under National Policy Statement No. 41 governing the procedures and timing (in particular, the lengthy lead times) for the dissemination of material to shareholders of public companies -- should be aligned with corresponding (and, in the example given, less onerous) requirements under corporate legislation such as the Canada Business Corporations Act.

Extensions of "Expedited Review" and/or "Designated Jurisdictions"

- extension of the proposed system of "expedited review", using single "designated jurisdictions", to:

(a) annual renewals and other filings by mutual funds;

(b) all prospectus filings;

(c) continuous disclosure filings (by issuers);

(d) applications for exemptions or other discretionary relief in multiple jurisdictions;

(e) dealer registration (the goal being that only one jurisdiction plays an active role); and

(f) investigations and hearings (with jurisdictions either cooperating in joint investigations and hearings or deferring to a lead jurisdiction).

Extensions of SEDAR

- extension of SEDAR to:

(a) filings under corporate laws;

(b) filings for stock exchanges;

(c) continuous disclosure filings by issuers;

(d) insider reporting;

(e) applications for exemptions or other discretionary relief in multiple jurisdictions; and

(f) broker, dealer and representative registrations, as a platform for a national system of registration.

Mutual Funds

- mutual funds would benefit from:

(a) the delegation of administrative authority by securities commissions to one or more industry self-regulatory organizations;

(b) extension of "selective review" to mature mutual funds' filings;

(c) an improved clearance and settlement system with the involvement of The Canadian Depository for Securities Limited, which handles a very high proportion of Canadian share transactions by computer, is recommended;

(d) uniform national minimum standards of education for registrants; and

(e) a simplified mutual fund prospectus for mature mutual fund issuers, supplemented by a standard-form disclosure booklet for customers, streamlined annual and continuous disclosure and fund-specific information to be provided at the point of sale.

Dealer Registration

- abolition of current residency restrictions that hinder sales of securities across provincial boundaries.

- standardized registration criteria administered by self-regulatory organizations.

- procedural manuals, to be kept up-to-date and made available by regulatory authorities, to assist in proper compliance by market participants.

Increased Coordination of Regulation

- establishment by the CSA of a national secretariat to monitor and coordinate policy initiatives, the goal being a major shift to national rather than local policy-making, even without a single national regulator.

- standardization across Canada of technical requirements such as the contents of offering memoranda, advertising rules and forms for reporting exempt trades.

- in the context of enforcement, more and better sharing of information between jurisdictions.

- a coordinated approach by the CSA to the use of "memoranda of understanding" with foreign regulators.

Availability and Use of Regulatory Information

- greater use by regulators of precedents: research memoranda or opinions generated in response to one filing or application should form the basis of future similar applications to prevent "reinventing of the wheel".

- publication of more commission opinions and practice notes.


- designation of individuals at each Commission to handle inquiries on particular topic areas, to expedite responses.

- increased use by regulators of technology compatible with that used by other regulators and market participants.

- increased delegation of responsibility to self-regulatory organizations, with regulators maintaining oversight or audit functions.

Areas for Further Consideration

The Task Force applauds the interest and effort demonstrated by all who made submissions, and acknowledges merit in each of the suggestions summarized above.

Certain of the suggestions are currently the subject of review by other bodies. For example, one suggestion was for better alignment between the rules of National Policy Statement No. 41 on shareholder communication and the corresponding requirements of corporate laws. As National Policy Statement No. 41 is currently the subject of a review by a CSA subcommittee with input from the Industry Implementation and Monitoring Committee, this Task Force is reluctant at this time to make its own recommendations on that issue. Similarly, a number of suggestions addressed matters of specific concern to participants in the mutual fund industry. In view of the current study of mutual fund regulation being undertaken by the Ontario Securities Commission, this Task Force proposes to await the recommendations of that study and further comments that the Task Force may receive before making any recommendations of its own that relate exclusively to that industry.

In some cases, the adoption of suggestions would require substantive legislative action. The goal and mandate of this Task Force is to offer practical assistance to the CSA in taking steps that are within its current powers. For that reason, the Task Force does not propose to address certain of these matters.

The Task Force is releasing this interim report with a view to generating and focusing further public comment. Accordingly, the Task Force is not at this time making specific recommendations to the CSA, nor assigning priorities. Rather, the Task Force has identified the following areas that it believes merit further scrutiny, discussion and suggestions.

Increased Coordination of Regulation

- the Task Force seeks further suggestions, and comments on the suggestions already received, for greater coordination of securities regulation in Canada, including further standardization of requirements, sharing of information and the concept of a national secretariat of the CSA.

Extensions of "Expedited Review" and/or "Designated Jurisdictions"

- regulators have already, with the current "Expedited Review" initiative, shown a willingness to rely on the expertise of their counterparts in other jurisdictions. The Task Force invites discussion, comments and further suggestions on the merits, and extensions, of this initiative.

Extensions of SEDAR

- the Task Force invites comments on the merits of expanded use of SEDAR, including those suggested in submissions received by the Task Force.

Provision of Information By Regulators

- the Task Force invites comments on suggestions made for greater provision by regulators of information concerning procedural matters, precedents, opinions and internal policies.


- a theme that underlies many of the current problems in securities regulatory administration in Canada and that will affect administrative responses is the availability of resources to securities administrators. The Task Force invites discussion on the funding and other provision of resources for securities regulation.

Further Input Sought

The Task Force has released this interim report with a view to encouraging public discussion, consultation and further input from concerned members of industry and the investing public. It is hoped that this interim report will facilitate this process by fostering greater understanding of suggestions made to date and of the Task Force's analysis and preliminary recommendations.

The Task Force invites additional submissions with suggestions as to practical steps that can be taken by Canadian securities regulatory authorities, under existing laws, to render securities regulation more consistent, more predictable, more cost-effective and more timely.

All submissions should be sent to:

William L. Hess, Q.C.
Chair, Task Force on Operational Efficiencies in the
Administration of Securities Regulation
c/o McCarthy Tétrault
Suite 3200, 421 - 7th Avenue S.W.
Calgary, Alberta T2P 4K9

Telecopier: (403) 260-3501

Submissions must be received by March 15, 1995.

Task Force on Operational Efficiencies in the Administration of Securities Regulation

Interim Report



1. BCE Inc. (to the Ontario Securities Commission), May 16, 1994

2. The Investment Funds Institute of Canada, September 12, 1994

3. Canada Trust, September 29, 1994

4. Vancouver Stock Exchange, September 30, 1994

5. Investment Dealers Association of Canada (to the Ontario Securities Commission), July 22, 1994

6. Canadian Bar Association (Ontario), September 20, 1994

7. Templeton Management Limited, October 21, 1994

8. BCE Inc., October 18, 1994

9. C.S.T. Consultants Inc., October 21, 1994

10. Spectrum Bullock Financial Services Inc., November 16, 1994

11. McCarthy Tétrault, December 14, 1994

Deemed Beneficial Ownership of Securities: Insider Reporting Requirements
Submission of Mr. Josef J. Fridman, Senior Vice-President, Law of BCE Inc. dated May 16, 1994 to the Ontario Securities Commission

The securities legislation of most Canadian jurisdictions deems a particular corporation to own beneficially those securities of an issuer that are beneficially owned by an affiliate of the corporation. Accordingly, direct and indirect subsidiaries of a parent corporation will be deemed to beneficially own securities owned by the parent corporation or by affiliates of the parent corporation. In the context of insider reporting obligations, the result is that directors and senior officers (as defined in applicable securities legislation) of a particular corporation will be deemed to be insiders, with corresponding reporting obligations, in respect of any reporting issuer in which the particular corporation or its parent corporation or other affiliate holds a voting interest in excess of 10%.

The submission cites the example of a corporate group in which the number of individuals with insider reporting obligations is very large by reason of the large number of affiliates within the group and by reason of the substantial number of reporting issuers in the same group. Alleviation of the insider reporting obligations by obtaining exempting orders is itself burdensome, particularly given the requirements of periodic renewal of such orders and continuous reporting of changes in the relevant facts. The submission characterizes this expenditure of time and resources as "ultimately not in the best interest of shareholders, taxpayers and the public in general".

The submission notes that important jurisdictions -- Quebec and the United States -- do not apply such broad deemed beneficial ownership rules. It also alludes to a consequentially overbroad group of persons "in a special relationship with a reporting issuer" and expresses the suspicion that the excessively broad insider reporting obligations are neither always complied with nor apparently strictly enforced.

The submission proposes the issuance by the Ontario Securities Commission of a blanket order exempting individuals from the insider reporting obligations (but not civil liability) to the extent imposed solely by reason of the operation of the deemed beneficial ownership rule, and notes directors and senior officers of subsidiaries would not thereby be relieved of the obligation to report dealings in securities of a reporting issuer parent corporation unless exempted by a specific order obtained under Ontario Securities Commission Policy No. 10.1.

The submission does not address multi-jurisdictional aspects of the problem identified but it should be inferred that a comparable blanket order would be required in each jurisdiction with similarly broad deemed beneficial ownership provisions in its legislation.

Composition of Task Force; Proposal for Expedited Prospectus Review
September 12, 1994 Submission of The Honourable Thomas A. Hockin, President & Chief Executive Officer of The Investment Funds Institute of Canada

The submission cites the growth and importance of the mutual fund industry in Canada and criticizes the absence from the membership of the Task Force of a "dedicated representative from the Canadian mutual fund industry", in particular of a representative who can "be said to speak for the fund management side of the industry". The submission calls for prompt rectification of "this significant omission" and offers the assistance of the Institute to that end.

The submission then addresses the Canadian Securities Administrators' "Proposal for Expedited Review of Short Form Prospectuses and Annual Information Forms" announced in August 1994 (the "Proposal"). The Task Force is requested to consider extending the proposed expedited procedure to renewal filings by mutual funds currently using the filing procedures under National Policy Statement No. 1 and the simplified prospectus regime under National Policy Statement No. 36. In support of this request, the submission cites the similarity, year to year, of mutual funds' renewal simplified prospectuses and annual information forms, and "duplicative comments", "repetitious responses" and "increased delay" under the current system.

The submission suggests that the selection of a Designated Jurisdiction as contemplated in the Proposal take into account ease of administration of the issuer, with reference to the head office location, and suggests in the alternative that particular commissions develop particular areas of expertise which, implicitly, would determine the selection of a Designated Jurisdiction.

The submission asks the Task Force to justify any failure to reduce filing fees levied by jurisdictions other than the Designated Jurisdiction.

Finally, the submission seeks confirmation that the selective review procedure under the Proposal would be applied to renewal annual information forms of mutual funds if they are made eligible for the expedited review regime under the Proposal.

National Regulation; Regulation of Mutual Fund Industry
September 29, 1994 Submission of Shelley P. Flynn, Manager, Government Relations, Canada Trust

Canada Trust supports initiatives for rationalization of securities regulation, in particular for a federal role either in regional securities commissions or by comprehensive federal regulation. Strong encouragement is given to continued consultation between federal and provincial governments and between industry and regulators, and to a pooling of resources, again through a national regime, to address current inefficiencies, duplication and unnecessary costs.

Focusing on mutual funds, the submission criticizes a "complex web of constraints" arising from the Canadian Securities Administrators' "Principle of Regulation Re Distribution of Mutual Funds by Financial Institutions", largely centred on provincial residency requirements, that impedes telephone selling of mutual funds. Inferring that these restraints are intended to promote consumer protection and job creation within provinces, Canada Trust considers that the former objective is largely served by National Policy No. 39 and that the restraints do not create local jobs but do reduce choice and yields to consumers. The residency restrictions should be removed, reducing distribution and management costs, raising yields to consumers, increasing competition (including from the United States) and widening distribution.

Mutual funds face a "multiplicity" of filing requirements, including a large number and variety of financial returns and a very large number of notifications of registration amendments. All Commissions should accept renewal registrations of salespersons employed by a particular dealer at the same time as the dealer's own filing rather than on each individual salesperson's registration anniversary. Mere changes in branch location or home address should not require an immediate filing as such information will appear in the annual renewal and changes of employer or province of employment are dealt with by other requirements.

The "compliance burden" on mutual funds and government expense should be reduced by:

1. a national securities commission or a "designated jurisdiction" approach with "a lead regulator, supported by interjurisdictional information sharing agreements";

2. elimination of regulatory requirements, returns or forms (or parts thereof) unnecessary to regulatory objectives;

3. a single registration process with one regulator; and

4. harmonized financial reporting requirements (citing the precedent of provincial trust and loan companies) and filing with only one regulator.

Broadening of Sanctions; International Transactions; Offering Document Clearance
September 30, 1994 Submission of John M. Forbes, Vice President, Corporate Affairs & Secretary, Vancouver Stock Exchange

The Vancouver Stock Exchange ("VSE") does not make detailed proposals but rather identifies areas on which it believes the Canadian Securities Administrators ("CSA") should focus, and expresses its willingness to participate in further discussions.

Noting that regulatory sanctions are often limited to the withdrawal of trading exemptions within a single jurisdiction, the VSE calls for a system under which one province could "rely on the initiatives of" another province (the phrase is not explained but perhaps means the application of sanctions similar to those applied by an originating province following a contravention in that first jurisdiction) to preserve "the integrity and reputation of the Canadian securities markets".

The VSE, citing the globalization of securities markets, is concerned at increasingly complex and "not necessarily reciprocal" securities rules and administration in different jurisdictions (with particular reference to United States federal and state systems) and calls on the CSA to address:

1. "A strong reciprocal arrangement with the U.S. regulators";

2. "A level playing field so that all Canadian jurisdictions are treated uniformly".

While supporting the initiative for expedited review of short form prospectuses and renewal annual information forms, the VSE notes that "expensive, time consuming and duplicative" prospectus clearance under National Policy No. 1 would still be required. The VSE "strongly encourage[s]" a "designated jurisdiction" process for all issuers and acceptance by all provinces of a standard-form exchange offering prospectus.

The CSA are encouraged to seek ways of facilitating memoranda of understanding among international securities regulators, which the VSE suspects are currently impeded by provincial regulation of securities in Canada.

The VSE notes in conclusion that many of its areas of concern "would naturally be resolved" by federal securities regulation.

Mutual Fund Regulation
July 22, 1994 Submission of Investment Dealers Association of Canada ("IDA") Joint Mutual Funds Committee to the Ontario Securities Commission

The IDA, in this response to the Ontario Securities Commission (the "OSC") review of mutual fund regulation, calls for self-regulation, enhanced education and registration standards, and efficient disclosure in the context of a "multi-fund "universe" (ie., a financial products market including but not limited to mutual funds).

The claimed benefits of "self-regulation, with government oversight" over direct government regulation include the abilities to "marshall specialized staff and industry expertise", enforce higher standards and more effectively control costs (not borne by taxpayers). On a "level regulatory playing field" all financial institutions and dealers should operate under the same rules, although the IDA does not seek exclusive self-regulatory authority for mutual funds, expressing support for an initiative by the Investment Funds Institute of Canada to also seek such status in respect only of mutual funds.

The IDA seeks an enhanced minimum national standard of education based on the Canadian Securities Course and a modified Conduct and Practices Handbook.

Decrying inefficient and "wholly inadequate" mutual fund clearance and settlement systems, and praising the Canadian Depository for Securities ("CDS") systems for other securities, the submission supports continuing consultation between the OSC and CDS.

Citing as its objectives more efficient and effective prospectus-level disclosure to clients and compatibility with United States developments, in what for mutual fund issues "in most cases are really secondary markets", the current prospectus-based system is characterized as excessive, expensive, contributing little to consumer understanding and inconsistent with market efficiency and investor protection. The recommended replacement system would include:

1. simplified prospectuses for "seasoned" issues -- meaning, perhaps, sales at least two years after the initial public offering;

2. a standardized disclosure booklet with all essential generic information to be in client hands by the time of the first mutual fund trade;

3. enhanced annual and continuous disclosure; and

4. "point-of-sale, fund-specific disclosure" patterned after the United States model.

Prospectus Filings; Exempt Financing; Registration; Continuous Disclosure; Discretionary Relief; Investigation and Enforcement; Policy-Making
September 20, 1994 Submission of Securities Law Subcommittee of the Canadian Bar Association (Ontario) Business Law Executive ("CBAO")

The CBAO offers suggestions for reducing regulatory duplication and unnecessary regulation.

Prospectus Filings

The "System for Electronic Document Analysis and Retrieval" ("SEDAR") should be implemented promptly and the abbreviated filing procedure for preliminary short-form prospectuses proposed by the Canadian Securities Administrators ("CSA") should be extended to other prospectus filings. Updating of the document table in National Policy Statement No. 1 should reduce filing deficiencies.

The "designated jurisdiction" concept in the CSA's proposal for expedited review of short-form prospectuses should be extended to other prospectuses. A non-designated jurisdiction should review and comment only on requirements unique to its jurisdiction, of which there should be few (where, for example, the Ontario Securities Commission (the "OSC") is the designated jurisdiction) or none (where uniform national disclosure is prescribed, as under National Policy Statements Nos. 36 and 47). The CSA should identify such unique local requirements and try to arrange for them to be dealt with by any designated jurisdiction.

Orderly selection of designated jurisdictions could involve, for example, all prompt offering qualification system prospectuses being allocated to the OSC, or all mutual fund simplified prospectuses under National Policy Statement No. 36 being allocated to a single jurisdiction, to produce greater specialization and streamlined review. "Selective review", to enhance or as an alternative to a "designated jurisdiction" system, could be linked (and presumably administered so as to meet) "a predetermined benchmark for the speed of processing".

Exempt Financing

Despite "relative uniformity" of prospectus exemptions, administration (form and content of offering memoranda, pre-filing requirements) varies significantly. The CBAO calls for standardization of offering memoranda contents, advertising rules and the exempt trade report form, as was accomplished with the insider report form.


With most market participants active interprovincially, local restrictions "frustrate the legitimate organizational and operational needs of dealers and ... create ... undue complexity and duplication". Standardized registration criteria, categories and conditions could reduce administrative burden and facilitate a "principal jurisdiction registration system" under which one regulatory or self-regulatory organization could administer a particular dealer's registration on behalf of all participating jurisdictions. Extension to the Investment Funds Institute of Canada of self-regulatory status for mutual fund dealers would also be helpful.

Procedural manuals, with timely updating, would assist compliance with filing and notification requirements that can be obscure and subject to revision or abandonment.

The CBAO calls for consistent registration requirements for individuals and suggests: conditional registration for internal transfers across jurisdictions or (upon notification by the new employer) changes of employer; conferring mutual fund registration authority on the Investment Funds Institute; and registration reciprocity between jurisdictions (at least on a regional basis).

Continuous Disclosure

Continuous financial disclosure should be made under SEDAR and be subject to review by only one jurisdiction, given "the relative harmonization of local securities laws" and the uniform financial disclosure standards imposed by the Canadian Institute of Chartered Accountants.

Non-financial disclosure requirements should be harmonized with corporate law requirements (National Policy Statement No. 41 sets a bad example).

Discretionary Relief

Concurrent applications for discretionary relief from multiple jurisdictions face significant practical deterrents. Filing on disk (pending SEDAR) of applications and draft orders would facilitate document preparation. Other inefficiencies, including incompatible deficiencies and differing staff workloads, could be addressed by a "principal jurisdiction" approach under a National or Uniform Act Policy comparable to National Policy Statement No. 1 and by staff reliance, to the extent possible, on memoranda prepared for similar prior applications.

Parallel blanket relieving rulings and orders, expanding on a recent OSC staff project, would harmonize regulation and reduce applications. CSA should consider publishing standard language for rulings and orders and a standardized procedure for applications (including specific requirements and, to the extent possible, forms of relief) should be set out in a National Policy Statement modelled after OSC Policy 2.1.

Greater coordination among staff branches within a particular securities commission and cross-disciplinary training of staff would reduce the personnel and time required for transactions for which a variety of relief is sought.

Investigation and Enforcement

Information-sharing memoranda of understanding, as used with foreign regulators, should be formally adopted among regulators in Canada. Information-sharing should begin early in investigations. Regular consultation between jurisdictions, and parameters governing which jurisdiction would lead a particular investigation, are suggested.

A National Policy Statement modelled after OSC Policy 2.3 should provide procedures for joint hearings and, perhaps, joint investigations and for selection of a lead jurisdiction.


Policy initiatives should ordinarily be national rather than local. The CSA may require a permanent secretariat to "shepherd" national policy initiatives and ensure early CSA awareness of initiatives. Early (pre-publication) consultation on policy development is recommended, as is publication of notice of and reasons for abandonment of any published draft policy.


The CBAO recommends taking advantage of information technology, including: filings by disk, fax or electronic mail; prompt finalization of SEDAR; creation of data bases of model applications and orders (available to practitioners to reduce common deficiencies): and effective use of voice mail to respond to inquiries or provide status updates. Administrators should jointly plan technology to ensure compatibility between jurisdictions.

Delegation of responsibility by regulators to self-regulatory organizations can help ensure compliance and provide consistent interpretation and application of harmonized rules. Administrators should not duplicate delegated responsibility but rather perform an oversight or audit function.

The CBAO is confident that current uncertainty as to the viability of policy statements, blanket rulings and memoranda of understanding will be resolved. National Policy Statements "are enormously helpful" and should be subjected to more continuous review and updating, perhaps through a permanent CSA secretariat, and "unwritten rules" and staff positions on recurring non-contentious issues should be formalized, catalogued and published with a view to upgrading applications and reducing comment time and deficiencies.

Mutual Funds; Simplified Prospectus; Annual Information Form; Filings and Filing Fees

October 21, 1994 Submission of Michael S.J. Mezei, General Counsel, Corporate Secretary, Templeton Management Limited

According to this submission, the goal of the mutual fund annual renewal process should be to provide investors with up-to-date information "in a timely, cost-effective and efficient manner". The current process is excessively complicated, requiring filings in multiple jurisdictions, at significant cost, of large volumes of material (including statements also filed again for disclosure purposes) for which investor demand is extremely small.

Supporting "any initiatives to reduce the documentation and time required in clearing new funds, annual renewals and National Policy No. 39 applications", including electronic filing and the extension to mutual fund filings of proposals for "expedited review", specific suggestions are:

annual information forms and statements of portfolio transactions should be filed only with a principal jurisdiction, with an undertaking to other jurisdictions to provide an annual information form to anyone upon request;

non-principal jurisdictions should require only "blacklined" copies of preliminary prospectuses;

elimination of duplicate filings of portfolio transaction and financial statements with commission disclosure branches (already filed for the mutual fund annual renewal);

all comments should flow through the principal jurisdiction;

the principles of "expedited review" should be extended to National Policy No. 39 applications.

Expressing concern at rising mutual fund filing fees, unmatched by proportionate increases in resources devoted to mutual fund regulation, the submission appears to call for the limitation of mutual fund filing fees to the costs of mutual fund regulation.

Uniformity of Legislation; Centralized Filing; Multi-Jurisdiction Exemptions; Default Notification; Contact Persons
October 18, 1994 Submission of Ildo Ricciuto, Senior Legal Counsel, BCE Inc.

While welcoming initiatives to address administrative inefficiencies in securities regulation, the submission identifies as the "greatest area of concern" for issuers the "lack of uniformity" among jurisdictions in both the wording of legislation (recognized as being outside the Task Force's mandate) and its application.

Among specific suggestions for operational efficiency are a single centralized location for the filing, under SEDAR, of disclosure documents. Such a system should be available to all issuers and should perhaps be extended to permit filings under corporate legislation and for stock exchange purposes.

A new centralized system, comparable to that for the national clearance for prospectuses, would facilitate multi-jurisdiction exemption applications.

While recognizing that the issue is beyond the Task Force's mandate, the submission reiterates concerns (previously set out in the BCE Inc. submission of May 16, 1994 to the Ontario Securities Commission) at statutory "deemed insider" provisions and the consequent volume of applications for insider reporting exemptions, and calls for action by the Canadian Securities Administrators.

Commissions should give an issuer reasonable advance notice of any intention to note it in default, to permit correction of what may be a "very technical" irregularity that might at present come to an issuer's attention only upon publication of a default notice in a commission bulletin.

Individuals at each securities commission should be identified as contact persons on particular topics, to expedite the handling of queries.

Registered Education Savings Plans: Prospectuses; Local Policies

October 21, 1994 Submission of James P. Renahan, President and Chief Executive Officer, C.S.T. Consultants Inc.

The submission focuses on registered education savings plans ("RESPs").

Although not prescribed in National Policy Statement No. 15, securities commissions require the inclusion in RESP prospectuses of a disclaimer to the effect that the issuer is not a trust company and the investment is not CDIC-insured. Application of this requirement is apparently inconsistent, giving some RESP issuers an unfair marketing advantage.

To facilitate investor comparison among RESPs, there should be more stringent and consistent prospectus disclosure of classes of investments, terms or maturity dates, insurance or guarantees and methods of calculating investment returns.

Local policies (for example, Saskatchewan Policy 3.8) that govern the administration of RESP programmes (supplementary disclosure documents, pre-registration sales training requirements) compel RESP administrators either to operate differently in different provinces or, in effect, to apply the most stringent of local requirements to all jurisdictions. The submission recommends a consultation and implementation process with a "national scope", akin to that for National Policy Statements, for policies with implications beyond a single jurisdiction.

Exclusion of Mutual Fund Industry

November 16, 1994 Submission of Allen C. Marple, President, Spectrum Bullock Financial Services Inc.

The submission expresses concern and disappointment at the Task Force's exclusion of "representation from the mutual fund industry" and, in view of the industry's size and impact on "a high proportion of Canadians", puzzlement that "mutual fund regulatory efficiency . . . is not being given top priority".

Specific subjects of complaint are an excessive level of regulatory filing fees and a seeming disregard by regulators, in the prospectus review process, of the significant level of auditing already performed on mutual funds by their outside auditors.

The small investor is considered to be paying for general inefficiencies of provincial regulation, more specific inefficiency "due to a lack of an expedited prospectus review process" and regulatory costs of "other more exotic securities filings", the costs of which should be borne by the users.

"Primary Jurisdiction" for Multi-Jurisdiction Applications and Prospectus Items; Streamlined Repetitive Orders; Electronic National Registration System

December 14, 1994 Submission of McCarthy Tétrault Securities Law Group (Vancouver and Calgary)

This submission recommends a streamlined process for review, by a designated primary jurisdiction, of applications for parallel rulings or orders in a number of jurisdictions, with non-designated jurisdictions relying upon the determination of the primary jurisdiction and, if applicable, making corresponding rulings or orders.

The submission also calls for extension of the new "expedited review" concept, with a primary jurisdiction to be solely responsible for reviewing items associated with prospectus filings not already eligible for the new procedures. The examples cited are financial forecasts, photographs and representations as to stock exchange listing.

Where exemption orders are routinely granted on the basis of similar circumstances, the submission calls for either blanket orders or publication by commissions of a streamlined form of application, with reference to precedent orders, to enable applicants to obtain routine exemption orders expeditiously and economically.

The submission encourages recognition by all jurisdictions of rules of other Canadian jurisdictions as being "substantially similar" to their own (as, for example, the Ontario Securities Commission has done in its Policy 7.1), thus simplifying the compliance burden.

The submission ends with a recommendation for use of the new System for Electronic Document Analysis and Retrieval ("SEDAR") for brokers', dealers' and representatives' registrations and registration amendments, with a view to developing a national electronic registration system.