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Securities Law

NIN 95/45 - Repeal of Local Policy Statement 3-30 [NIN - Rescinded]

Published Date: 1995-11-24
Effective Date: 1996-01-01
Local Policy Statement 3-30, entitled Underwriters Conflict of Interest (the "Policy"), came into effect on February 1, 1987 as the successor to a pre-existing policy regarding underwriter's conflict of interest. In some respects, the Policy has become outdated while, in other respects, the Policy has been superseded by subsequent regulatory initiatives over the years.

Outdated Limits on Purchases of Shares

Part 3 of the Policy, which deals with limits on purchases of shares by an underwriter prior to the filing of a first prospectus, sets a limit of the lesser of 150,000 shares or 10% of the number of shares outstanding after the share distribution. However, an absolute number limit of 150,000 shares does not relate to the number of shares outstanding and is no longer appropriate given the widely varying number of shares outstanding in issuers conducting initial public offerings. In addition, percentage limits do not work because, at the time securities are purchased, it is impossible to know how many shares will be outstanding upon completion of the initial public offering and therefore whether the limits will be exceeded.

Part 13.1 of the Securities Regulation

Subsequent to the coming into effect of the Policy, Part 13.1 of the Securities Regulation, B.C. Reg. 270/86 (the "Regulation"), entitled "Conflicts of Interest" was enacted. Part 13.1 establishes a broad regime for regulation of conflicts of interest involving registrants. While Part 13.1 does not provide a limit on the number of shares or the percentage of outstanding shares that may be held by an underwriter or related group of underwriters, it does impose a requirement for disclosure of the relationship, and participation by an independent underwriter in certain circumstances. The degree of independent underwriter participation set out in Part 13.1 was modified by BOR#92/2 on August 6, 1992. In addition, Part 13.1 requires that certain disclosures be made on written confirmation statements where a transaction involves related party or connected party relationships. Part 13.1 of the Regulation is continued as Division 11 of Part 4 of the Rules, B.C. Reg. 479/95, entitled "Registrants' Conflicts of Interest".

Client Preference Rules

Full client preference rules are now set out in Rule 29.3 of the Investment Dealers Association ("IDA") and Rule 3.06 of the Vancouver Stock Exchange ("VSE").

Sales and Undertakings by Underwriters

The Policy requires underwriters to file an undertaking in which they agree to comply with a dribble-out provision as set out in Part 5 of the Policy. However, such an undertaking would no longer be required upon the implementation of the VSE's Seed Share Resale Matrix (the "VSE Matrix"), which takes effect on January 1, 1996 and contains dribble-out provisions applicable to underwriters. For non-exchange issuers, there is a 12 month seasoning provision, which renders the undertaking unnecessary.

Repeal of the Policy

British Columbia is the only Canadian jurisdiction with the equivalent of the Policy. In light of certain outdated requirements of the Policy, the restrictions now set out in Part 4, Division 11 of the Rules, the full client preference rule now contained in the IDA Rules and VSE Rules and the implementation of the new VSE Matrix on January 1, 1996, there is no longer a need to retain the Policy. Accordingly, effective January 1, 1996, the Policy is repealed.

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

Douglas M. Hyndman

REF: BOR#92/2