NIN 95/29 - Task Force on Operational Efficiencies in the Administration of Securities Regulation - Final Report [NIN - Rescinded]

Published Date:	1995-07-07
Effective Date:	1995-07-06

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. Attached to NIN#95/8, the Commission published an interim report of the task force. The Commission is publishing the final report of the task force in this edition of the Weekly Summary.

The Commission, together with other CSA members, will be considering the recommendations of the Task Force and determining which initiatives can be implemented to improve regulatory efficiency.

DATED at Vancouver, British Columbia, on July 6, 1995.

Joyce C. Maykut, Q.C.
Chair

References: NIN#94/7
NIN#95/8

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 was 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 were:

The law firm McCarthy Tétrault provided legal resources to the Task Force from its offices in Quebec, Montreal, Toronto, Calgary and Vancouver. The Task Force members express their appreciation and thanks to Stephen R. Murison, a partner of McCarthy Tétrault in its Calgary office, for coordinating the activities of the Task Force and preparing and editing successive drafts of this Report.

Submissions to the Task Force

In response to a request for comments published on behalf of the Task Force in June 1994, and to similar invitations made by individual members of the Task Force in public speeches, the Task Force received eleven written submissions in 1994.

On the basis of such public input and its own analysis of areas of concern meriting further consideration, the Task Force delivered its Interim Report dated December 31, 1994. The Interim Report, which was published in January, 1995, invited further discussion and comments to assist the Task Force in fulfilling its mandate of formulating recommendations as to practical measures that securities regulators could take to enhance regulatory efficiency. The Task Force received a further ten written submissions in response to the Interim Report.

The 21 submissions to the Task Force were prepared by public corporations, investment and fund managers, law firms and associations representing investment dealers, bankers, securities transfer agents and securities lawyers. Each of the submissions is summarized in the Appendix to this Report. The Task Force was impressed with the high quality of the submissions and commends the time and effort dedicated by all who prepared them.

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.

Regulators, moreover, can function only within the boundaries set by the laws and regulations enacted by their respective governments. The mandate of the Task Force, and its deliberations and recommendations, have therefore focused on practical measures, typically of a procedural nature, that can be taken by regulators in the exercise of their own authority to enhance the efficient administration of current laws.

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 Task Force is convinced 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 four general areas:

1. "Paper Burden": The first area of criticism centres on filing requirements, sometimes characterized as excessive 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.

4. Inconsistency Between Jurisdictions: Procedures and technical requirements of all types are rarely identical notwithstanding the absence of apparent policy differences between jurisdictions, the result being unnecessary complexity, delay and frequent errors in compliance. This inconsistency is itself an important contributing factor to the first three problem areas cited.

Recent Initiatives

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

1. SEDAR

In an important new development, the computer-based System for Electronic Document Analysis and Retrieval -- "SEDAR" -- is undergoing testing. 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. In a notice published in April 1995 the CSA announced that The Canadian Depository for Securities Limited will assume responsibility for the operation and management of SEDAR and that SEDAR will be accessible through two widely used word-processing software formats.

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.

The CSA will be monitoring SEDAR during its introductory period. It is expected that SEDAR will 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 access 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 process may, indeed, reinforce for issuers and their management, directors and professional advisors their ultimate responsibility for the accuracy of securities offering documents.

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

(a) Prospectus Filings

Pursuant to a 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 understands that experience to date by users of the expedited review procedure has been positive and that the Quebec Securities Commission, although not a formal participant in the procedure, has contributed to successful implementation of the procedure in other jurisdictions through its own timely response to such filings. 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 formal participant in this and similar initiatives.

(b) Exemptive Relief

More recently, the Saskatchewan Securities Commission introduced its Local Policy Statement 1.10, "System for Expedited Review of Certain Exemption Applications", the stated purpose of which is "to streamline the process of applying to the Commission for relief" where comparable relief is also being sought by the applicant in its principal jurisdiction. Where an applicant's election to utilize the expedited review procedure is approved, the Commission will issue an order paralleling that of the applicant's principal jurisdiction, to "eliminate duplication", "provide a faster turnaround time" and enable the Commission "to focus [its] resources on applications made by Local Applicants and on applications which involve new or unique policy issues".

Although this Saskatchewan policy has been in place for too short a time to permit a full evaluation of its effects, the Task Force encourages other commissions to address inefficiencies in the exemption relief process.

4.Registration Residency Restrictions

Proposals are under consideration that would ease local residency requirements for registrations of certain classes of securities dealers. Such requirements have been characterized as a hindrance to interprovincial marketing of some financial products. Most notable is the draft national Policy Statement No. 54, "Expedited Registration System for Advisers", published by the CSA in April, 1995 for public comment. The Task Force approves of the direction of these proposals, which would also involve reliance by securities regulators upon the expertise of either a counterpart regulatory authority in a designated principal Canadian jurisdiction or a self-regulatory organization recognized for that purpose by the non-principal jurisdictions.

5.Rule-making Authority

Rule-making authority has been granted to the Ontario and Alberta securities commissions. Similar legislation has been introduced in British Columbia and is awaiting proclamation in Saskatchewan. It is reasonable to expect that similar developments will take place in some 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.

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. More formal coordination among responsible Ministers will also be desirable to promote harmonization and consistency.

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. For example, for the fiscal year ended March 31, 1994, of aggregate revenues of close to $100,000,000 reported by Canadian securities commissions, more than 50 percent was contributed to general government revenues. With the loss of such revenues, securities regulators are being deprived of funding that is essential to Canada's capital markets. The effectiveness of securities regulation risks further deterioration, at a time when securities regulatory fee receipts are at record levels, as governments face and impose fiscal restraints that limit other sources of general government finance.

The funding issue is crucial to several elements of this 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.

The Task Force recognizes that efficient regulation of capital markets implies that regulatory costs not serve as a material barrier to market access. Criticisms of regulatory costs tend, however, to be directed not at the imposition of regulatory fees as such but rather at mismatches between fees paid and regulatory output. That such mismatches are real is demonstrated by the high proportion of commission revenues contributed to general government funds.

Efficient regulation of the capital markets requires that the securities commissions be able to engage personnel, on a permanent basis and on temporary assignments as required, in sufficient number and with the qualifications required (including, where appropriate, 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, determined where feasible in consultation with capital market participants, has been resolved.

Recent legislative changes will allow the securities commissions in Alberta and British Columbia full access to their own revenues. The Task Force hopes that the legislatures of other jurisdictions will undertake similar initiatives. It notes, however, that the British Columbia commission will continue to be subject to spending restrictions on staff compensation, which in the view of the Task Force detracts from the principle of funding autonomy.

Recommendations of the Task Force

Having considered the issues brought to its attention as matters of concern to securities industry participants, including regulators themselves, and the suggestions made both in formal submissions to the Task Force and in more informal comments directed to it, the Task Force recommends that Canadian securities regulators give careful consideration to adopting the measures set forth below. The Task Force has grouped its recommendations into three broad recommendations; such categorization should not be taken to imply either that the items listed are discrete or that any suggested measure might not address more than one area of concern.

The Task Force has also assigned to its recommendations relative priorities, reflecting its assessment of the urgency and importance of the particular problems addressed and the anticipated complexity of implementation. The assignment of priorities is meant to indicate where effort might profitably be first directed, but the Task Force emphasizes that it does not wish any initiative directed at enhanced efficiency to be postponed until implementation of any other measure. The Task Force is of the view that all measures that serve to enhance regulatory efficiency are to be encouraged.

• Recommendation #1: Extension of the "Designated Jurisdiction" Concept
  All members of the CSA are strongly encouraged to give serious consideration to arrangements, capable of implementation by national policy statements, by bilateral or multilateral agreements, or otherwise, for extension of the concept of a "designated" or "principal" jurisdiction (which in appropriate circumstances might be a self-regulatory organization recognized for the purpose) to the following:
  (a) all prospectus filings;
  
  (b) annual renewals and other filings by mutual funds;
  
  (c) dealer registration (the goal being that only one jurisdiction plays an active role); the Task Force notes with approval the progress in this direction evidenced by draft National Policy Statement No. 54;
  
  (d) continuous disclosure filings (by issuers);
  
  (e) applicationsfor exemptions or other discretionary relief in multiple jurisdictions; and
  
  (f) investigations and hearings (with jurisdictions either cooperating in joint investigations and hearings or deferring to a lead jurisdiction).
  Comment: Using the "designated jurisdiction" concept, the regulatory task of reviewing or otherwise processing a filing or application would be primarily or exclusively performed by a designated principal jurisdiction. That jurisdiction's disposition of the filing or application would then ordinarily be followed by participating non-designated jurisdictions. Matters that the Task Force considers amenable to extension of the concept are listed in descending order of priority.
  
  This recommendation calls upon commissions to expand the scope of expedited review by bilateral or multilateral arrangements, ideally but not exclusively where the full membership of the CSA is immediately prepared to follow. The Task Force sanctions bilateral arrangements as a spur to innovation within commissions and as a means to demonstrate the relative merits of new measures.
  
  Priority: The Task Force considers this recommendation -- both the particular emphasis given to extended reliance on designated jurisdictions, and the more general sanction of bilateral arrangements -- of high priority. Successful implementation of one or more such arrangements should in turn generate further such innovations.
  
• Recommendation #2: Implementation and Extension of SEDAR
  The members of the CSA are encouraged:(a) first, to implement SEDAR in the form currently undergoing testing, subject to such modifications as may be indicated from the trial introduction; and (b) second, to develop extensions and enhancements to SEDAR to permit use of the system for:

  (i) continuous disclosure filings by issuers;

  (ii) broker, dealer and representative registrations (such electronic means being available as a platform for, but not dependent on the introduction of, a single coordinated interjurisdictional system of registration);

  (iii) filings under corporate laws;
  
  (iv) filings for stock exchanges;
  
  (v) insider reporting; and
  
  (vi) applications for exemptions or other discretionary relief in multiple jurisdictions.

  Comment: The Task Force is of the view that electronic filing capabilities and access to information offer significant opportunities both for the enhancement of regulatory efficiency and, more broadly, for reinforcement of competitive advantages of Canadian capital markets and market participants in an international environment.
  
  The two-part form of the recommendation underlines the belief of the Task Force that prompt introduction of the basic system now undergoing testing is imperative and should not be delayed to await equally desirable extensions.
  
  It is the hope of the Task Force that, as market participants are exposed to the benefits of SEDAR, other useful electronic database applications will be developed by or in conjunction with the private sector. Examples might include:
  • the compilation of information, currently found in the various periodic securities bulletins, offering in a single location information from across Canada of interest to particular user groups;

  • a consolidated and current schedule of fees levied by all commissions and other regulatory authorities;

  • consolidated and current electronic securities practice manuals.
  The Task Force does not consider it appropriate to make specific technical recommendations but does endorse comments received by it to the effect that, in developing and implementing electronic information systems, the CSA and its member organizations should bear in mind both the desirability of technological compatibility with systems used by other regulators and market participants, and flexibility to accommodate continuing advances in technology.
  
  Priority: The Task Force assigns a high priority to this two-part recommendation. The areas of suggested extension are listed in the order of implementation that the Task Force considers appropriate; the Task Force is of the view, however, that any such extension will be beneficial and would not object to a reordering of extensions in recognition, for example, of technological feasibility.

• Recommendation #3: Specific Administrative Measures by Individual Commissions

Enhanced Regulatory Coordination

A theme common to many of the submissions received by the Task Force, and implicit in many of the recommendations of this Report, is the necessity for a shared commitment to enhanced regulatory efficiency and greater coordination of effort on the part of Canadian securities regulators and their governments. Inconsistencies between jurisdictions, not justified by substantive policy differences, are a fundamental and increasingly unacceptable source of inefficiency.

The Task Force recommends no single mechanism for achieving the desired coordination. However, a precondition to implementation of many of the measures recommended by the Task Force is the availability of resources, including personnel, dedicated to achieving consistent practical inter- or multi-jurisdictional changes. To this end, individual regulators should as a minimum dedicate funds, physical facilities and/or the time of individual staff members to this purpose, to be used in conjunction with resources and personnel similarly dedicated by other regulators. Such dedication of personnel might, but need not, involve temporary physical secondment to the offices of other commissions or regulatory bodies. Coordination might ultimately extend to, or operate simultaneously with, a "secretariat" (a term used in a number of submissions to the Task Force) responsible to the CSA, with financial resources and with personnel seconded from the private sector or public sector, including securities commissions. The current manner of implementation of SEDAR, in which the CSA will for the first time engage personnel explicitly responsible to the CSA as a whole, might serve as an example.

Whatever the mechanism or mechanisms adopted to enhance coordination, particular tasks to be undertaken by the CSA in a coordinated way include the following:

(a) reviewing current securities legislation, regulation, policies, rules, opinions and practices of the Canadian jurisdictions with a view to:

(i) identifying current inconsistencies between jurisdictions;

(ii) identifying inappropriate, ineffective or unnecessary elements;

(iii) recommending specific regulatory objectives; and

(iv) developing national policies, rules, practices, procedures and forms designed to accomplish the recommended objectives on a consistent basis in all participating jurisidictions and that would, upon appropriate steps being taken within jurisdictions, supersede current local equivalents; and

(b) reviewing securities legislation, regulation, policies, rules or practices proposed or requested by any member jurisdiction, whether suggested for adoption on a national or merely local basis, and offering comments to the CSA as a whole on the regulatory impact and technical elements of such requests or proposals (bringing to light, at an early stage of local policy and procedure development, potential conflicts or inconsistencies with efficient securities regulation across Canada and so serving as a catalyst to accelerate responses among jurisdictions without encroaching upon local autonomy).

Areas for Further Consideration

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

Certain of the suggestions made to the Task Force 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 issues of regulatory efficiency relating particularly to the mutual fund industry. The Task Force understands that, following the release in January 1995 of the report on mutual fund regulation prepared by Commissioner Glorianne Stromberg of the Ontario Securities Commission, specific task forces will be addressing the issues raised by her recommendations. As a result, except with respect to the extended adoption of the "designated jurisdiction" concept, the Task Force will leave it to the participants in that process to formulate recommendations.

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.

Although this Report and the measures suggested herein that might be taken by securities regulatory authorities to enhance regulatory efficiency substantially complete the mandate of the Task Force, the Task Force stresses that the goal of enhanced efficiency is of fundamental and continuing importance to participants in the Canadian financial and securities industries and to the broader Canadian economy. The Task Force hopes that the objective will remain in the forefront of the attention of all industry participants and that public discussion and analysis of the issues continues.

Further Steps

With the publication and delivery of this Report to the members of the CSA, the Task Force has fulfilled the mandate conferred upon it. The Task Force hopes that this Report will prove useful to the CSA and its individual member commissions and that the recommendations of the Task Force will stimulate practical responses that will generate real enhancements and efficiencies in Canadian securities regulation. The Task Force goes so far as to express the hope that a focus on regulatory efficiency -- with emphases on consistency, predictability, cost-effectiveness and timely response -- will form a fundamental aspect of regulatory theory, practice and compliance. The anticipated benefits would accrue not only to securities market participants, including regulators, investors and advisers, but to the Canadian economy as a whole.

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

The Investment Funds Institute Of Canada, September 12, 1994

Canada Trust, September 29, 1994

Vancouver Stock Exchange, September 30, 1994

Investment Dealers Association Of Canada (to the Ontario Securities Commission), July 22, 1994

Canadian Bar Association (Ontario), September 20, 1994

Templeton Management Limited, October 21, 1994

Bce Inc., October 18, 1994

Consultants Inc., October 21, 1994

Spectrum Bullock Financial Services Inc., November 16, 1994

Mccarthy Tétrault, December 14, 1994

Macmillan Bloedel Limited, January 16, 1995

The Investment Funds Institute Of Canada, February 2, 1995

Canada Trust, March 10, 1995

Canarc Resource Corp., March 13, 1995

Tupper Jonsson & Yeadon, March 13, 1995

Canadian Bankers Association, March 14, 1995

Nova Corporation, March 15, 1995

Security Transfer Association Of Canada - B.C. Region, March 15, 1995

Bce Inc., March 23, 1995

Borden & Elliot, April 4, 1995

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.




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.

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.

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.

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.

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.

Registration

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-Making

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.

General

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.

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.




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.




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.




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.



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.

In the Final Report of the Task Force, the discussion of "Recent Initiatives" should be expanded as follows:

"SEDAR" -- include discussion of the development and status of the Electronic Data Gathering and Retrieval system ("Edgar") of the United States Securities and Exchange Commission ("SEC"), The Toronto Stock Exchange's Computer Assisted Trading System ("CATS"), the corporate information database made available to analysts by Esso/Imperial Oil and proprietary trading organizations ("PTOs") such as the Reuters/Institutional Network Corporation electronic equity trading system "Instinet".

"Selective Review" -- note that it, properly, places more risk on issuers and their directors, officers, auditors and counsel; include analysis of United States experience.

"Expedited Review" -- information on its practical effects is needed, and might be obtained by conducting a survey.

"Rule-making Authority" -- granting unconstrained rule-making authority to securities regulators risks politicization of the process. Proposed regulations should be vetted, before submission to provincial cabinet, by a new institution such as a CSA permanent secretariat. Constraint is needed on the exercise of prosecutorial discretion.

"Appropriate Funding" -- funding must enable regulators to engage outside experts to assist in investigations.

The suggestion under the heading "Availability and Use of Regulatory Information" for more publication of Commissions' opinions and practice notes is strongly endorsed and extended to Commissions' internal administration manuals. The SEC is cited as "a very good model", notably in its handling of "no-action" letters. Inaccessibility of law and legal decisions (a trend not limited to securities law) must be avoided.

Incremental improvements in Canada's current securities regulatory system "are highly desirable". Development of a "new federalism", in which federal policies could be administered regionally, provincially or locally, is welcomed.



An underlying principle of efficient securities regulation should be harmony and consistency, with local deviations only where "a clear and potent local interest" is demonstrated.

Examples are given of current duplicative and inconsistent procedures for initial, renewed and amended registration of mutual fund dealers, advisors, officers, directors and sales personnel (including variations in documentation, time periods and exercises of regulatory discretion), producing unjustifiable delay and cumbersome and costly compliance. The submission calls for "clear and harmonious rules" and a central electronic registry administered by a single authority in the form of a CSA secretariat, one regulator assigned responsibility for all jurisdictions, or a national registrar. Applicants would register once for all jurisdictions desired, with minimal incremental fees for multi-jurisdiction registrations.

Problems with mutual fund prospectus filings and renewals, including differing documentation and delays and inconsistencies arising from multi-jurisdiction prospectus review, "could be mitigated by a more centralized scheme". Within jurisdictions, requirements to file material for both renewal and continuous disclosure purposes amount to "redundancy within duplication". Electronic filing would reduce duplication but not necessarily costs. IFIC offers assistance in furthering "expedited review", which it prefers to "selective review" and which should address many concerns (but would not simplify the processing of exemption applications).

Although beyond the mandate of the Task Force, the submission criticizes the current mutual fund prospectus and "annual information form" disclosure system as costly and not necessarily responsive to the needs of investors.

Enhanced regulatory efficiency "requires two initiatives": elimination of both duplication and "disharmony and inconsistency", to reduce costs to regulators and market participants. Electronic filing must be coupled with harmonization and administrative centralization. Centralization would also enhance regulatory responsiveness and coordinated communication with the securities industry.

Specific recommendations include: a single periodic bulletin to be issued on behalf of all jurisdictions; identification, examination and elimination of unnecessary procedural variances between jurisdictions; and review of and reductions in fees (perhaps including a cap on prospectus filing fees) now borne disproportionately by the mutual funds industry.

The CSA's efforts are seen as being hampered by its lack of the authority and personnel that a more formal agency would have, and fee reductions may not be welcomed by governments.




This submission supplements the writer's September 29, 1994 submission to the Task Force.

Issuers eligible for the "prompt offering prospectus" procedure face duplication and complication from requirements to file separately (with differing timing and fees and, in two provinces, duplicate filings with separate commission departments) annual information forms ("AIFs") and "management discussion and analysis" ("MD&A"). The AIF and MD&A requirements should be combined into a single document, to enhance efficiency and to enable all issuers to utilize short form prospectuses "except in certain circumstances".

"Expedited review" of prospectuses "is strongly encouraged" but must be coordinated not only among securities commissions but also with the Office of the Superintendent of Financial Institutions and provincial Ministries of Finance (which review prospectuses of certain loan companies).

"SEDAR" will be useful for prospectus filings and a number of other continuous disclosure and other filings but, unless filings can be effected using any of a wide variety of software, the need to reformat documents into one of a limited number of authorized software formats would actually lessen efficiency.

A national securities bulletin, similar to that currently produced by the Ontario Securities Commission and containing such information as fee changes, filings and opinions for all jurisdictions and changes or proposals affecting National Policy Statements, should be available without charge to all issuers. National administration in some form would be necessary and welcomed provided that duplication is avoided.




Legislation of Ontario, British Columbia and other jurisdictions requires inclusion in management information circulars and certain other documents, in connection with executive compensation disclosure, of a "performance graph" illustrating an issuer's share price performance compared to that of a stock exchange index.

The submission calls for removal of the requirement for the performance graph, which is strongly criticized as "a waste of management time" that does not provide, meaningfully or accurately, information that "is better provided by a shareholder's broker". Proposals for electronic filing would involve substitution of a verbal description for the graph, resulting in duplication of effort and demonstrating "how ill advised the performance graph requirement is".



From his perspective as an experienced British Columbia securities lawyer, the writer criticizes the "inability" of securities commission and stock exchange staffs to distinguish what is "material" when reviewing offering documents. The pursuit of "extensive minutiae" imposes delay and expense on issuers and produces documents too voluminous and detailed to be useful to a potential investor.

Excessive vetting of documents leads to delays in regulatory responses generally and to demands for additional regulatory hiring and funding. Costs and delays of prospectus approval also force primary offerings out of the jurisdiction or "underground" into exempt mechanisms such as private placements.

The CSA is exhorted to focus regulatory staff on the "material" rather than on "immaterial details".



Initiatives to enhance regulatory efficiency are welcomed, as is the commitment of the senior securities regulators cited in the Task Force's original Request for Comments. The task requires the commitment of governments of all jurisdictions, "concerted and cooperative effort" and "a shift in focus" from discrete jurisdictions onto Canadian capital markets generally.

Administrative Inefficiencies

Duplication: Fundamental to enhanced efficiency is elimination of duplication, including requirements for multiple registrations and renewals and for filings and record retention in multiple jurisdictions. A centralized registry, operated by a national organization or cooperatively among securities commissions, would significantly reduce duplication. Single multi-jurisdiction registration would presume standardized registration procedures and consistent exercise of regulatory discretion. Proposals to ease local residency requirement for certain dealer registrations are noted with approval. Registrations by organizations and individual employees could be replaced by a simple attachment, listing all individuals, to the employer organization's registration.

Fees:Fees assessed by each jurisdiction are characterized as "a barrier to conducting business on a national scale". Greater efficiencies should result in reduced fees. Maximums should be fixed for fees and a composite multi-jurisdiction fee schedule should be readily accessible. Prospectus filing fees should reflect time reasonably required for review, to avoid subsidies by some participants of others; results would include reduced fees for mutual funds and differing fees for initial filings and renewals. Comments concerning high registration costs borne by chartered banks, made by of Ms. Glorianne Stromberg in her study of investment funds, are reiterated. Fees in excess of regulatory operating costs are characterized as a hidden and regressive tax that "impair[s]... international competitiveness". While accepting the need for adequate funding, the "appropriate level of funding cannot be determined in a vacuum" but must take into account the effect of regulatory costs on market activity levels.

Prospectuses:Expedited review is welcomed but concerns are expressed about the likely effectiveness of recent proposals, which offer only the potential benefit of, at best, two days' shortening of the prospectus approval process and are weakened by the ability of jurisdictions to opt out and by Quebec's non-participation. Concerted coordination of effort, or a single responsible entity, are needed, as is delegation of responsibility (which is undermined by provisions for opting out). Expedited review should also provide for centralized or otherwise coordinated filing and review of applications for exemption orders. The expedited review initiative could be "more ambitious", extending to mutual funds and streamlining mutual funds renewals.

Under the Ontario programme of "selective review" (the adoption of which, to enhance efficiency, is appreciated), a document for which a final receipt has been issued should not, following a subsequent review, be subject to compulsory amendment before the next renewal, except in cases of material error.

Exemption Orders:A central registry for routine exemption orders would considerably reduce duplication of effort and cost. The initiative of the Saskatchewan Securities Commission with its Local Policy Statement 1.10 is welcomed as a step towards interprovincial coordination but it is noted that that Commission has reserved the right to opt out.

Inconsistent filing deadlines for maintaining and renewing registrations render compliance complex and very costly.

Electronic filing should be implemented on an expanded basis. Cost savings, which it is hoped will be significant, should be passed on to industry participants. Steps toward harmonization of filing requirements are necessary before a single electronic filing can be made. To "fully capitalize" on the advantages of electronic filing it "must be implemented in conjunction with a central registry system" or other coordinated system involving a single agency.

Substantive Law

Substantive law produces inefficiencies: (i) by imposing inefficient operating structures or practices; or (ii) as the result of inconsistencies between jurisdictions. The submission calls upon regulators to address all aspects of inefficiency including substantive provisions, failing which the task of streamlining regulation will be incomplete and the mandate of fostering efficient operation of capital markets will be thwarted.

Substantive inconsistencies between jurisdictions include definitions (for example, "connected issuer" and "related issuer") and required wording for prescribed disclosure. An example of disharmony within a single document is found in section 11 of the CSA Principles of Regulation re: Distribution of Mutual Funds by Financial Institutions. Disharmony between National Policy Statements and local legislation is found in rules governing trades between a mutual fund and its portfolio manager or affiliate or associate thereof -- prohibited under Ontario legislation but conditionally permitted by National Policy Statement No. 39. A mechanism for identifying inconsistencies and pursuing harmonizing amendments should be devised.

"Regulatory Responsiveness"

The CSA "must be made more responsive", particularly in timely formulation and adoption of National Policies. There must be (i) a commitment by governments to enhancing the efficiency of Canadian capital markets and (ii) accountability for results; a "level of accountability" would be achieved by identification of specific targets and monitoring of progress. A permanent secretariat could be helpful but might add bureaucracy, costs and delays.

A national securities bulletin "would be of great practical assistance". Greater accessibility of policy information is beneficial but policies (distinguished from rules) must not be allowed to "fetter the legitimate application of regulatory discretion".

Revenues raised through securities regulation "should be available to fund the work of securities commissions". Greater efficiencies, in part from increased delegation of responsibilities among regulators to reduce overlap, should result in a significant decrease in costs to industry participants.




The submission supports measures to streamline Canadian securities law requirements and compliance and makes the following recommendations on items raised for discussion in the Interim Report of the Task Force:

"Increased Coordination" -- Technical requirements should be completely standardized. A national secretariat of the CSA should be established "to oversee a move to the exclusive use of National Policies for all matters of general securities law policy" other than "purely local" policies, which should also be passed on by the secretariat.

"Expedited Review" -- The "designated jurisdiction" concept should be extended to all securities law filings, including applications for discretionary relief, the ideal being a single filing only with, and comments only from, the designated jurisdiction. Applications for discretionary relief would outline the relief sought for each jurisdiction and the relevant authority; the designated jurisdiction could grant national relief in consultation with other jurisdictions. More immediately, prospectus filing requirements should be standardized, preferably dispensing with "due diligence" materials such as supporting resolutions and with multiple executed copies.

"Extension of SEDAR" -- SEDAR should be seen "in action" before its extension but, assuming successful implementation, it should eventually become mandatory for all filings and be compatible with the United States Securities and Exchange Commission's "EDGAR" system.

"Provision of Information" -- To facilitate "greater access to the regulators' views", an electronic filing system could be extended to provide a data base of rules, opinions, precedents and internal regulatory policies. In the interim, there should be more publication of clarification notes and staff communiqués, ideally reflecting "a single national staff point of view" through the CSA. "[I]increasing uniformity in the creation and promulgation of securities policy" (specifically, National Policy Statements and reasonable comment periods) is noted with approval.

"Funding" -- Fees should be applied to the securities regulatory function and be adequate to permit its smooth and expeditious operation.




With the growth in transactions between Canada and the United States, Canadian regulators must deal in a more coordinated fashion with "cease trade" orders with a view, particularly, to facilitating consistent and informed responses by securities transfer agents.

Three current problem areas require review:

- an issuer has co-transfer facilities in a jurisdiction other than that in which a cease trade is ordered;

- an individual investor is subjected to a cease trade order in one jurisdiction but presents securities for transfer in another jurisdiction;

- an issuer or investor is subject to a cease trade order in Canada but trades or transfers can be effected outside Canada.

The CSA is asked to promulgate "a single policy to ensure that cease trades are communicated and acted upon consistently". A mechanism is also required to permit, without the necessity of an exemption order, settlement after a cease trade order of a trade effected prior to the order.



The Task Force has been provided with a copy of this submission made to the British Columbia Securities Commission (the "BCSC") in response to the BCSC's request for comments on a proposal to require the filing with the BCSC of all disclosure material filed with comparable authorities or exchanges elsewhere.

The proposal is criticized as imposing "an unnecessary regulatory burden for issuers", resulting in "more, not better, disclosure". Issuers qualified to conduct business in numerous jurisdictions, including those overseas, are required to compile and file a wide variety of material, much of which conveys the same information but in different formats and some of which addresses very particular local requirements. The filing of all such material with the BCSC "would involve a `sea' of paper", "add an operating inefficiency" and conflict with regulatory harmonization.

It is noted that Canadian securities legislation and regulations, National Policy Statement No. 40 and stock exchange requirements require timely disclosure of information material to investors, including both material changes and material facts. Issuers are, however, at present required to file with the BCSC only reports and press releases disclosing material changes.

It is suggested that any changes resulting from the British Columbia proposal incorporate a "materiality" threshold, by requiring the filing with the BCSC of all documents filed with any other authority that are "material to investors". The suggestion is intended to address the intention underlying the current proposal while focusing on the principle of quality, rather than quantity, of information.



Canada's securities markets being primarily national or international, provincial regulation of securities is inherently inefficient. The CSA should strive for a regime similar to the proposed federal securities commission (insufficient provincial support for which is disappointing), perhaps an interprovincial securities commission similar to the proposal in the Stromberg Report on Mutual Funds.

To counter growing divergence in provincial securities legislation, a national secretariat or committee of the CSA should recommend changes to make the regulatory framework substantially uniform (although implementation methods may differ) and endeavour to ensure that future changes to the regulatory framework in any province do not jeopardise such uniformity. (The CSA's success with uniform implementation of 1987 take-over bid legislation is noted.)

Commissions should implicitly delegate responsibility for preliminary prospectus review to the principal jurisdiction only, along the lines of the system for "Expedited Review". Wider adoption of Ontario's policy on selective review of prospectuses is suggested, so that proportionately more resources would be applied where substantive issues are more likely to raised. Ontario should eliminate its ten day delay in notifying other jurisdictions that a prospectus will not be subjected to review, to accelerate review in other jurisdictions.

All securities commissions should adopt a policy similar to Policy 1.10 of the Saskatchewan Securities Commission to expedite the processing of applications also being made in other Canadian jurisdictions. Efficiency would be enhanced by substantially uniform legislation in all provinces. Exemptions that are routinely granted on application should be implemented by blanket rulings or orders (or, in Ontario, by rules) to preclude the need for applications.

Advisors, dealers and sales persons should undergo the full registration process in only one province, and be entitled to registration in other provinces largely on the basis of the first registration. Registration requirements (including bonding and insurance requirements and forms) should be more uniform and forms should be more "user friendly", with unnecessary requirements and procedures removed, to reduce errors and delays.

Certainty as to the application of law to interprovincial transactions enhances capital market efficiency, reduces the need for exemption applications and promotes efficient regulation. The issue of applicable law should be addressed in a number of situations:

- The dealer or advisor and the client are in different jurisdictions (the recommendations concerning registration may address this situation).

- Where securities are traded in a province other than that in which they were first issued, which, if any, restrictions apply?

- Where resale restrictions are tied to "reporting issuer" status, it should perhaps be sufficient to be a reporting issuer in any one province.

- Each province should adopt an equivalent of the United States Securities Act of 1933 "Regulation S" concerning prospectus requirements and secondary trading exemptions for securities issued outside the province (and outside Canada).