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Securities Law

NIN 95/15 - Disclosure of Securities under "Control or Direction" [NIN - Rescinded]

Published Date: 1995-03-24
Effective Date: 1995-03-23

Effective April 17, 1995, the Superintendent of Brokers, along with the securities regulators in the other provinces and territories of Canada, the Office of the Superintendent of Financial Institutions and Industry Canada Corporations Directorate, will specify a new insider reporting Form ("Form 36"). The new Form is intended to improve readability and to assist insiders to comply with their reporting obligations. The new Form will be accepted for filing in all Canadian jurisdictions, both federal and provincial.

The most significant amendments to the Form are to provide, in Box 5(E), a place for insiders to more easily and clearly disclose changes in the securities over which they have control or direction and, in Box 5(F), a place for insiders to identify the registered holder where control or direction is exercised. The British Columbia Securities Act and securities legislation elsewhere has, for years, required that insiders disclose not only changes in securities directly or indirectly beneficially owned, but also securities over which the insider has control or direction. See NIN#95/14.

The purpose of thisIn this Interpretation Note is to clarifys the meaning of the words "control or direction over securities in the definition of insider in section 1(1) and in section 70 of the Securities Act.

A person with control or direction over securities includes any person, including a portfolio manager, who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares:

a) voting power, which includes the power to vote, or to direct the voting of, such securities, and/or

b) investment power, which includes the power to acquire or dispose, or to direct the acquisition or disposition of, such securities.

A person other than the beneficial owner of the securities mamay hold this power through a power of attorney, grant of limited trading authority, or management agreement. A portfolio manager may also hold this power through the assignment of discretionary trading aFor example, a portfolio manager may hold this power over the securities of clients where the clients have assigned discretionary trading authority to the portfolio manager. A director of an issuer may have been granted trading authority over the securities held by family members or associates. A director or owner of a private company may have direction or control over the securities held by the private company.

Regardless of how the authority to exercise control or direction over the securities is conveyed, where the aggregate securities under a person's control or direction eexceeds 10% of the voting securities of a reporting issuer that person is an insider of the reporting issuer within the meaning of section 1(1) of the Act and must comply with the provisions of section 70 concerning the filing of insider reports on an initial and then monthly basis.

For example, portfolio managers for a number of clients may find that they have no single client that holds securities carrying more than 10% of the voting rights attached to all the outstanding voting securities in a specific reporting issuer. However, when the holdings of all of the portfolio manager's clients are aggregated, the portfolio manager may have direction over more than 10% of the voting securities of the reporting issuer. In this case, the portfolio manager must comply with section 70 of the Act and file an insider report. Similarly, a management company in a family or group of mutual funds would also have to consider whether it had control or direction over the portfolio securities of the family or group of mutual funds.

In the OSC Bulletin of September 16, 1994, the Ontario Securities Commission published a discussion paper [(1994), 17 OSC Bulletin 4437] concerning several issues related to a proposed refinement of the early warning regime and the rules regarding insider reporting, take-over bids and control block distributions. One of the issues raised in that paper was the potential difficulty faced by at least some portfolio and mutual fund managers in trying to comply with the reporting obligations that flow from having control or direction over securities. Alternatives to the current reporting requirements are under consideration and may be implemented in one or all Canadian jurisdictions.

In British Columbia, the insider reporting requirements are clearly set out in the Securities Act.The Commission expects all insiders to comply, on a timely basis, with the legislation. In addition to the circumstances set out in LPS#3-14 - Applications for Insider Reporting Exemptions, in certain isolated circumstances, the Commission may consider applications under section 152.2(b) of the Securities Regulation for discretionary relief from the insider reporting requirements. To grant the relief, the Commission or Superintendent must be satisfied in the circumstances that there is adequate justification for so doing and that it would not be prejudicial to the public interest to do so.

DATED at Vancouver, British Columbia, on March 23, 1995.

Joyce C. Maykut, Q.C.
Vice Chair

REF: NIN#95/14