NIN 96/14 - Proposed National Instrument Rule relating to System for Electronic Document Analysis and Retrieval (SEDAR) [NIN - Rescinded]

Published Date:	1996-05-10
Effective Date:	1996-05-08

Substance and Purpose of Proposed National Instrument

The System for Electronic Document Analysis and Retrieval known as SEDAR is an initiative of the Canadian Securities Administrators (the "CSA") that will facilitate electronic filing and public dissemination of certain disclosure documents required to be filed under the securities legislation of the provinces and territories of Canada. It will also facilitate electronic payment of required filing fees.

The proposed rules governing electronic filings are set forth in a proposed National Instrument (the "National Instrument"), the text of which is published in this Special Supplement to the Weekly Summary. The National Instrument mandates that certain prescribed filings made under the securities legislation of the provinces and territories of Canada be transmitted to the securities regulatory authorities in electronic format using a computer-based system operated by CDS INC., a subsidiary of The Canadian Depository for Securities Limited. The National Instrument prescribes, among other things, the categories of filers that are required to make electronic filings, the specific types of filings that are required or permitted to be transmitted in electronic format, the requirements for persons seeking to access the SEDAR system to make filings on their own behalf or on behalf of other filers, and the manner in which electronic filings are to be prepared and transmitted.

The National Instrument is being proposed for implementation as a rule, regulation or other appropriate instrument in each of the CSA jurisdictions. In certain cases, the implementing jurisdiction is proposing one or more changes to the provisions of the National Instrument that would create exceptions to the application of the National Instrument in that jurisdiction. Exceptions of this type that have general application to filers are discussed in the document entitled "Summary of the Structure and Operation of the SEDAR System and the Electronic Filing Requirements Under the National Instrument and the SEDAR Filer Manual", a copy of which is published in this Special Supplement to the Weekly Summary.

Summary of Proposed National Instrument and SEDAR Filer Manual

The National Instrument sets forth the requirements and procedures relating to electronic filings. The National Instrument incorporates by reference the SEDAR Filer Manual, which contains certain standards, procedures and guidelines for the preparation and transmission of electronic filings. The current version of the SEDAR Filer Manual is Version 1.0 dated April 1, 1996. A copy of the SEDAR Filer Manual is published in this Special Supplement to the Weekly Summary.

Implementation of Mandated Electronic Filing

In the first stage of SEDAR implementation, it is proposed that all issuers, other than certain foreign issuers that are exempt, and all third parties filing documents relating to non-exempt issuers will be required to file continuous disclosure documents as well as prospectuses and other public offering documents using the SEDAR system. Other securities filings may be included as required electronic filings in one or more subsequent stages of SEDAR implementation.

It is proposed that reporting issuers, including mutual fund issuers, will be phased into electronic filing in a series of discrete groups pursuant to a phase-in schedule. Phase-in is currently scheduled to begin in October 1996 and to be completed by the end of 1996. Issuers that are not reporting issuers and non-exempt third party filers will become subject to electronic filing requirements at year end once all reporting issuers have been phased in.

While certain foreign issuers (and third parties filing in relation to such issuers) will initially be exempt from mandated electronic filing, those foreign issuers will be permitted to elect to make filings in electronic format in which case they (and their third party filers) will be required to continue to make filings electronically for a minimum two year period.

Preparation and Transmission of Electronic Filings

Under the National Instrument, documents will be required to be prepared in or converted to an acceptable electronic format prior to filing. Various recent versions of WordPerfect and Microsoft Word, the most popular wordprocessing software products on the market, have been prescribed. Requiring the use of one of these two commonly used wordprocessing software products will limit the amount of reformatting required prior to transmitting electronic filings while at the same time facilitating access to and retrieval of securities filings by the public and the staff of the securities regulatory authorities.

Under the proposed rules, electronic filings will be required to be assembled and transmitted using a proprietary software package that will be licensed to electronic filers by CDS INC. ("CDS"), the subsidiary of The Canadian Depository for Securities Limited that has been approved by the CSA to act as the SEDAR filing service contractor. Electronic filings will be transmitted telephonically through a corporate wide area network operated by CDS using a dial-up or leased line connection and will be received at a server operated by CDS on behalf of the securities regulatory authorities. Electronic filers or their filing agents will be required to pay subscription and licensing fees to CDS as well as service charges covering the cost of the electronic filings. CSA filing fees and certain filing service charges will have to be paid using electronic means.

Each of the securities regulatory authorities will be able to download securities filings directed to it. Securities filings that are downloaded may be reviewed or otherwise processed electronically by the securities regulatory authorities and, where appropriate, will be made accessible to the public in the SEDAR database of public filings and possibly through other public dissemination channels. Filing fees payable to the securities regulatory authorities will be transmitted electronically to their respective financial institutions using electronic data interchange protocol and receipt of these payments by the securities regulatory authorities will be confirmed electronically by the SEDAR system.

The National Instrument provides that filers will be able to transmit electronic filings (with the benefit of technical support by staff of CDS) between the hours of 7:00 a.m. and 11:00 p.m. Eastern Time on any day other than a Saturday, Sunday or national holiday. The CSA may give consideration to extending the time periods during which filers may transmit filings electronically subject to constraints imposed by system maintenance and backup requirements as well as cost constraints relating to the provision of technical support by CDS. Under the National Instrument, electronic filings will be considered filed with applicable securities regulatory authorities at the time on the day that the transmission to the SEDAR server is completed, except in Québec where the filing will be deemed completed only when it has been downloaded by the securities commission. In circumstances where the filing of a document marks the beginning of a time period during which a securities regulatory authority is required by applicable securities legislation to take certain action, that time period will only commence if the transmission is completed by 5:00 p.m. local time on a business day in the jurisdiction where that securities regulatory authority is located. If the transmission is not completed by 5:00 p.m. local time on a business day in the relevant jurisdiction, the time period will begin on the next business day.

Signatures To Electronic Filings

Under SEDAR, signatures to documents filed electronically will be presented in typed form rather than in manual format. However, in the case of certain filings (such as prospectuses) in respect of which designated signatories are subject to civil liability for a misrepresentation under the applicable securities legislation, individual signatories will be required to sign manually a certificate of authentication before the electronic filing is made. This certificate will have to be filed in paper format with CDS within three business days after the electronic filing is made. The requirement for the certificate of authentication is intended to ensure that civil rights of action provided to investors under the securities legislation of the provinces and territories of Canada are not affected adversely by the requirement for typed signatures on electronic filings.

Hardship Exemptions

The National Instrument contains two hardship exemptions that will permit an electronic filer to make a filing in paper format rather than electronic format. First, a temporary exemption will be available to electronic filers, generally for short term technical difficulties in filing an electronic format document. Under this exemption, a paper format filing will constitute the official filing but it will be required to be followed by the filing of an electronic copy in order to ensure that the electronic database of public filings is complete. Second, a continuing exemption will be available to electronic filers under limited circumstances for a specific document or group of documents. Unlike the temporary hardship exemption, in this case the electronic filer must file a written application with the applicable securities regulatory authorities. If the continuing hardship exemption is granted, the relevant document or group of documents may be filed in paper format with the applicable securities regulatory authorities and there would be no requirement to file an electronic format copy in these circumstances.

The National Instrument also contains an exemption from electronic filing requirements for certain documents existing prior to October 1, 1996 when the SEDAR system is scheduled to become operational. Documents created after the implementation of the SEDAR system will be more likely to conform to the SEDAR formatting requirements or will be easier to convert if they do not conform.

Graphic and Image Material

Due to the technical difficulties and potential costs that can be associated with the transmission and display of graphic and image material in electronic filings, the proposed rules prohibit the inclusion of maps and large photographs in any electronically filed copy of a securities document and provide filers with an option to omit any or all photographs from electronic filings. If a map or photograph appearing in a paper format document or distributed as a supplement thereto is omitted from an electronic filing, a reference to the omission of the map or photograph must be made in the electronic format version. The electronic filer will be required to retain a paper format copy of any omitted map or photograph for at least six years and must provide a paper format copy upon request to any securities regulatory authority where the filing was made.

Filer Profiles

The National Instrument also creates a new filing for electronic filers in the form of a requirement to file a "filer profile" using electronic means. A filer profile is a discrete set of information concerning an electronic filer that is generally disclosed publicly in various documents filed under applicable securities legislation. The filing of the filer profile in electronic format will facilitate the recording of electronic filings against profiled issuers and third party filers for purposes of database searching and retrieval and will serve to make key information pertaining to electronic filers more readily available to the public and the securities regulatory authorities.

Other Exemptive Relief

The National Instrument also contains a general provisions authorizing a designated representative of the securities regulatory authority or, except in Ontario, the securities regulatory authority itself, to grant exemptive relief from any requirement in the National Instrument, in whole or in part, subject to such conditions or restrictions as may be imposed if it is appropriate in the circumstances to do so.

A more detailed summary of the National Instrument and the technical procedures and formatting requirements contained in the SEDAR Filer Manual is included in the accompanying document entitled "Summary of the Structure and Operation of the SEDAR System and the Electronic Filing Requirements Under the National Instrument and the SEDAR Filer Manual".

Background and Alternatives Considered

In the Spring of 1990, the CSA began developing an electronic filing system for all required securities filings. The CSA decided to pursue electronic filing for a number of reasons. On a practical level, electronic filing would eliminate bulky paper records and allow for much faster and better access by market participants to more information. On the regulatory side, the CSA decided that an electronic filing system was needed to improve the efficiency and continued competitiveness of the Canadian capital markets. The Securities and Exchange Commission of the United States was implementing the Electronic Data Gathering And Retrieval system known as "EDGAR". In addition, securities markets in North America were becoming increasingly interdependent through such developments as the Multi-Jurisdictional Disclosure System. The CSA concluded that the use of technology would facilitate regulatory harmony at the North American level and make compliance easier and more efficient.

In June 1994, the CSA published a notice to provide the securities community with the opportunity to comment on SEDAR. The notice included preliminary information with respect to systems requirements, certain legal and procedural issues and implementation. The CSA noted that WordPerfect had been selected as the software for electronic formatting of documents, and that IBM Canada would develop the proprietary computer-based filing and retrieval system. The notice also invited comments as to whether electronic filing of documents using the SEDAR system should be mandated. Comments in response to the first notice were generally favourable and supportive. Some commenters made submissions in support of the addition of Microsoft Word as an acceptable wordprocessing format.

In April 1995, the CSA published a second notice in order to update the filing community on the progress of the development of SEDAR. The major development in the SEDAR project was that CDS had assumed responsibility for the operation and management of SEDAR. In addition, the CSA, in consultation with IBM and CDS, concluded that recent versions of Microsoft Word should be added as a second acceptable wordprocessing format. Finally, the CSA determined that each jurisdiction would seek to mandate filers to make electronic filings using the SEDAR system, at least for "national" filings. Public comment in response to the CSA's second notice was favourable and has led the CSA to develop the SEDAR system and publish the National Instrument as described in this Notice.

Unpublished Materials

In proposing the National Instrument, the CSA has not relied on any significant unpublished study, report or other material.

Anticipated Benefits and Costs

It is expected that the adoption of the National Instrument would provide significant benefits to filers as well as to investors and the Canadian securities regulatory authorities. The proposed implementation of electronic filing through SEDAR would make the process more efficient for: (i) filers, in preparing and filing documents with the securities regulatory authorities; (ii) the securities regulatory authorities, in retrieving, storing, processing and disseminating such documents; and (iii) investors, in gaining access to and reviewing the filed documents.

Electronic filing of documents through SEDAR would result in a number of benefits to filers. First, filers would have access to one-stop filing since they would be able to make a filing in all CSA jurisdictions with a single electronic transmission. Electronic filing of documents would avoid the uncertainty and delay associated with alternate forms of delivery such as courier and first class mail. With SEDAR, filers would be able to make filings during extended business hours, namely, from 7:00 a.m. until 11:00 p.m. Eastern Time. Finally, electronic filing would eliminate the need to submit multiple copies of public filings, which should reduce the time and certain costs associated with preparing public filings.

Electronic filing of documents would also facilitate review and response to filings by staff of the securities regulatory authorities because of the added ease with which filings being examined and other information would be accessible. When the SEDAR system is operational, it is anticipated that the securities regulatory authorities would be able to receive, store, process, and disseminate electronic information more efficiently. The physical volume of information received and requiring storing would be reduced. Automatic routing could be implemented to help ensure that filings are directed to the proper office or branch.

Electronic filing is expected to enable investors to access and review public filings and related information more efficiently. The filing of documents and related information through SEDAR would provide investors with ready access to a comprehensive database of current information regarding public companies. Investors would have access to filed documents and related information through direct access to the SEDAR database of public filings. Access would also likely be available through the Internet and, possibly, third party information service providers. In particular, information regarding smaller issuers would be more readily available to investors, thereby enhancing the market exposure of those companies. Investor selected search criteria could be used to identify vital documents containing financial and other information.

The implementation of mandated electronic filing of documents with the securities regulatory authorities may result in some cost to filers in excess of that which would be incurred under a paper based system. Filers will need to train their staffs to prepare documents for electronic filing or hire agents to file the documents electronically on their behalf. In either case, filers will have to pay SEDAR filing service charges that are directly related to their electronic filing requirements. Some of these costs relate primarily to initial implementation and, therefore, will diminish over time as filers become familiar with electronic filing. The Canadian securities regulatory authorities believe that the net increase in the cost to filers of compliance with the new rules is outweighed by the benefit to filers of the increased efficiency in the electronic filing process and by the value to securityholders and to the market of readily accessible information relating to public issuers of securities.

Consequential Amendments

Effective January 1, 1996, a number of amendments were made to the Securities Act to accommodate electronic filing (see NIN#95/40). In addition, the Securities Rules, also effective January 1, 1996, contain provisions in respect of SEDAR (see NIN#95/41). A further three amendments to the Securities Rules are being published for comment with this Notice to ensure that there is no inconsistency between the Securities Rules and the National Instrument.

Comments

Interested parties are invited to make written submissions with respect to the National Instrument. Submissions received by September 6, 1996 will be considered. The CSA invites specific comments on the technical procedures and document formatting requirements set forth in the SEDAR Filer Manual, which is incorporated by reference in the National Instrument. There has been significant interest and discussion between the Canadian stock exchanges and the CSA regarding how exchange filing requirements can be met by SEDAR. Although all parties are of the opinion that significant exchange participation will benefit the filing community and members of the public who want access to documents filed through SEDAR, given the current development schedule, exchanges are unlikely to be full SEDAR participants by the October 1, 1996 effective date. The Commission may be prepared to consider interim transitional relief for local filers if any hardship to local filers is demonstrated to exceed the benefits of having an electronic database of public filings for all issuers. The Commission invites specific comment on this issue.

Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission, in duplicate, as indicated below. A diskette containing an electronic copy of the submission (in DOS or Windows format - preferably in WordPerfect) should also be provided if possible.

British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
Office of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of Newfoundland
Securities Registry, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon Territory
c/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto ON M5H 3S8

As securities legislation in certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions received cannot be maintained.

Questions may be referred to any of the following:

Sandy MacDonald Wade D. Nesmith
British Columbia Lang Michener Lawrence & Shaw
Securities Commission Barristers and Solicitors
(604) 660-4800 (604) 691-7415

Kenneth Parker Karen Eby
Alberta Securities Commission Ontario Securities Commission
(403) 427-5201 (416) 593-8242

Mark DesLauriers Richard Proulx
Osler, Hoskin & Harcourt Commission des valeurs
Barristers and Solicitors mobilières du Québec
(416) 862-6709 (514) 873-5326

Jacques Labelle
Commission des valeurs
mobilières du Québec
(514) 873-5326

Documents published for comment

The Commission is publishing in a Special Supplement to the Weekly Summary of April 25, 1996 [should be May 10, 1996] the following documents:

· draft consequential amendments to the Securities Rules to accomodate SEDAR
· the text of the proposed National Instrument, together with footnotes that are not part of the proposed National Instrument but have been included to provide background and explanation
· a summary of the structure and operation of the SEDAR system and the electronic filing Requirements under the National Instrument and the SEDAR Filer Manual
· the text of the SEDAR Filer Manual, Version 1.0 dated April 1, 1996

DATED at Vancouver, British Columbia, on May 8, 1996.

Douglas M. Hyndman
Chair

1. Section 98 of the Securities Rules, B.C. Reg. 479/95 is amended

(a) by repealing subsection (2) and substituting the following:

(2) Subject to subsection (3) of these rules and to the National Instrument entitled "System for Electronic Document Analysis and Retrieval (SEDAR)", the body of a propsectus must be in roman type at least as large as 10 point modern type.

(b)in subsections (3) and (4) by striking out "printed prospectus" and substituting "prospectus", and

(c) by repealing subsection (5) and substituting the following:

(5) Subject to the National Instrument entitled "System for Electronic Document Analysis and Retrieval (SEDAR)", the executive director may permit the inclusion of specific charts, graphs, graphics, logos, maps or photographs, if it would not be misleading or detract from the readability of the prospectus.

2. Section 151 is amended by adding the following

(3) An envelope marked "Continuous Disclosure" need not be used for a report required to be filed under section 67 (1) (b) of the Act that is filed electronically.

3. Section 153 is amended

(a)in subsection (1) by striking out "Subject to subsections (3) and (4)", and substituting "Subject to subsection (3),",

(b)by repealing subsection (3) and substituting the following:

(3) Subject to the National Instrument entitled "System for Electronic Document Analysis and Retrieval (SEDAR)", a reporting issuer must file a record under subsection (1) in duplicate if the record concerns a takeover bid., and

(c)by repealing subsection (4).