NIN 98/28 - Amendments to the Securities Act [NIN - Rescinded]

The Finance and Corporate Relations Statutes Amendment Act, 1998, S.B.C. 1998, c. 7 (the "Amendment Act") received royal assent on May 13, 1998. The Amendment Act made amendments to the Securities Act (the "Act"), the Mortgage Brokers Act and the Real Estate Act.

Sections 24 to 28 of the Amendment Act make several substantive amendments to the Act. A copy of sections 24 to 28 of the Amendment Act is attached to this Notice. These amendments are not yet in effect.

Amendments Impacting on Segregated Funds (Variable Insurance Contracts)

Sections 24 and 25 of the Amendment Act amend the definition of security in section 1 of the Act and the registration exemption for variable insurance contracts in section 46 of the Act. Variable insurance contracts based on segregated funds are similar in certain respects to mutual funds but are sold by insurers. Currently there is some uncertainty about whether segregated funds are excluded from the definition of security in section 1 of the Act or are securities but exempted from the registration and prospectus requirements of the Act by sections 46(l) and 75(a) of the Act.

These amendments remove the exclusion from the definition of security to clarify that segregated funds are securities but retain the registration and prospectus exemption. This gives segregated funds the same status under the Act as mortgages, GICs, shares of cooperatives, and Canada Savings Bonds. At the present time, these amendments have limited effect. Persons selling segregated funds are not required to register with the Commission or file a prospectus. The Commission has provided an exemption from the requirement to register as an adviser for insurance agents and insurance salespersons licensed under the Financial Institutions Act (see the exemption in BOR#95/13 for securities described in what was then section 32(o) of the Act, now section 46(l) of the Act). However, the amendments will mean that, in an enforcement context, the Commission could remove a person’s right to sell segregated funds or impose other sanctions for fraud or misrepresentation in the sale of these products, like other products sold in reliance upon exemptions set out in sections 46 and 75 of the Act. The Commission will coordinate any enforcement action in this area with the Financial Institutions Commission and the Insurance Council of British Columbia.

The amendment also makes it certain that the Commission can make rules that would apply to the sale of segregated funds under the exemption. For example, rules could be adopted to establish requirements for disclosure, sales practices or the proficiency of the persons selling segregated funds. At this time, the Commission has not yet determined whether any rules will be necessary and does not plan to make a decision on this issue until it completes discussions with insurance regulators. The Commission and other members of the Canadian Securities Administrators are having discussions with the Canadian Council of Insurance Regulators to determine how to ensure equivalent regulation of segregated funds and similar products, such as mutual funds.

Amendments relating to Insider Reporting

Section 26 of the Amendment Act amends section 87 of the Act by moving the authority to set time periods for insider reporting into the Securities Rules. The amendment replaces the current 10 day filing requirement with a prescribed period and clarifies that the required report must disclose changes in control or direction over securities as well as changes in ownership. These amendments will enable the Commission to shorten the time for filing insider reports. The Commission intends to propose rules to shorten the time for filing reports disclosing changes to 10 days after the date the change occurs from 10 days after the end of the month in which the change occurs. This will bring the filing requirements into line with the current timing in Alberta and Quebec and with the timing being proposed in Ontario. The amendment will also give the Commission flexibility to shorten the time frame further, as it, along with the commissions of the other jurisdictions, moves to electronic filing.

Amendments relating to Take Over Bids

Sections 27 and 28 of the Amendment Act amend sections 105 and 110 of the Act. These amendments to the take over bid provisions in the Act maintain uniformity with other jurisdictions. Other CSA jurisdictions are expected to introduce similar amendments to implement the recommendations made by the IDA Committee on Take Over Bid Time Limits (known as the "Zimmerman Committee"). The proposed amendments are part of a package of legislative and rule amendments that will extend the minimum time period for responding to a take over bid. This will give a target company’s directors more time to react and consider alternatives and investors more time to consider the bid. The amendments also allow take over bids to be commenced by advertisement in financial newspapers.

Proclamation

The Amendment Act is not yet in effect. The Commission anticipates that the amendments relating to segregated funds will be proclaimed in force within the next several months, given the limited impact of these changes at this time. The amendments relating to insider reporting and take over bids, discussed above, will require the preparation of supporting Rule amendments and coordination of the effective dates with other jurisdictions. The proposed Rule amendments are expected to be published for comment within the next few months. Once the comments on the proposed Rule amendments are received and considered and other jurisdictions have passed similar amendments, the Commission will recommend that the government proclaim the amendments to the Act. The Commission will issue notices advising of these proclamations as they occur.

Additional Copies

Additional copies of the Amendment Act are available at a cost of $5.89 per copy (including G.S.T.) from

Crown Publications
521 Fort Street
Victoria, B.C.
V8W 1E7
Phone: (250) 386-4636

or

Queen’s Printer
849 Hornby Street
Vancouver, B.C.
V6Z 1T9
Phone: (604) 660-0981

DATED at Vancouver, British Columbia, on June 18, 1998.

Douglas M. Hyndman
Chair

24 Section 1 (1) of the Securities Act, R.S.B.C. 1996, c. 418, is amended by repealing paragraph (e) of the definition of "security" and substituting the following:

(e) an agreement under which the interest of the purchaser is valued, for the purposes of conversion or surrender, by reference to the value of a proportionate interest in a specified portfolio of assets, .

25 Section 46 is amended by repealing paragraph (l) and substituting the following:

(l) variable insurance contracts issued by an insurer if the variable insurance contract

(i) is a contract of group insurance,

(ii) is a whole life insurance contract providing for the payment at maturity of an amount not less than 3/4 of the premiums paid up to the age of 75 for a benefit payable at maturity,

(iii) is an arrangement for the investment of policy dividends and policy proceeds in a separate and distinct fund to which contributions are made only from policy dividends and policy proceeds,

(iv) is a variable life annuity, or

(v) provides for payment at maturity of an amount not less than 3/4 of the premiums paid by the purchaser for a benefit payable at maturity; .

26 Section 87 is amended

(a) in subsection (2) by striking out "within 10 days of becoming an insider," and substituting "within a prescribed period of time after becoming an insider,",

(b) by repealing subsection (4) and substituting the following:

(4) If, while a person is an insider of a reporting issuer, the person's direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer changes from that shown or required to be shown in the latest insider report filed by the person, the person must, within the prescribed period after the change takes place, file an insider report in the required form disclosing

(a) the person's direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer, and

(b) the change in the person's direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer., and

(c) in subsection (5) by striking out "within 10 days after the date on which that deeming occurs," and substituting "within a prescribed period of time after the date on which that deeming occurs,".

27 Section 105 is amended

(a) by repealing paragraph (d) and substituting the following:

(d) Withdrawal. -- Securities deposited pursuant to the bid may be withdrawn by or on behalf of a depositing security holder

(i) at any time before the securities have been taken up by the offeror,

(ii) at any time before the expiration of the prescribed period from the date of a notice of change or variation under section 108, and

(iii) if the securities have not been paid for by the offeror within the prescribed period after having been taken up;,

(b) in paragraph (j) by striking out "and in any event not more than 3 days," and substituting "and in any event not later than the prescribed period,",

(c) in paragraph (k) by striking out "within 10 days of" and substituting "not later than the prescribed period after",

(d)in paragraph (l) by striking out "and pays for", and

(e) by adding the following paragraph:

(l.1) Further regarding bid extensions. -- Despite paragraph (l), if the offeror waives any terms or conditions of a bid and extends the bid in circumstances where the rights of withdrawal conferred by paragraph (d) (ii) are applicable, the bid must be extended without the offeror first taking up the securities which are subject to those rights of withdrawal; .

28 Section 110 is repealed and the following substituted:

Commencement of bid and delivery

110 (1) A take over bid may be commenced in accordance with either subsection (2) or (7).

(2) A take over bid may, and an issuer bid must, be commenced by delivering the bid to the holders of securities referred to in section 105 (a) in accordance with subsection (6) of this section.

(3) If a bid is commenced under subsection (2), the bid must be filed and, in the case of a take over bid, delivered to the offeree issuer's principal office, on the day the bid is delivered under subsection (2) or as soon as practicable after that.

(4) A notice of change or variation in respect of a bid must be filed and, in the case of a take over bid, delivered to the offeree issuer's principal office, on the day the notice of change or variation is delivered to holders of securities of the offeree issuer or as soon as practicable after that.

(5) Every directors' circular and every individual director's or officer's circular or any notice of change in relation to it that is delivered to holders of securities of an offeree issuer must be filed, and must be delivered to the offeror's principal office, on the day the directors' circular or individual director's or officer's circular or the notice of change is delivered to the holders of securities of the offeree issuer, or as soon as practicable after that.

(6) A take over bid or issuer bid, a take over bid circular, an issuer bid circular, a directors' circular, an individual director's or officer's circular and every notice of change or variation in the bid or circular must be

(a) mailed by prepaid first class mail to the intended recipient, or

(b) delivered to the intended recipient by personal delivery or in such other manner as the executive director may approve,

and any bid, circular or notice so mailed or delivered is deemed to have been delivered and, subject to subsections (8) and (9), is deemed conclusively for the purposes of this Part and the regulations to have been dated as of the date on which it was so mailed or delivered to all or substantially all of the persons entitled to receive it.

(7) An offeror may commence a take over bid by publishing an advertisement containing a brief summary of the bid in at least one major daily newspaper of general and regular paid circulation in British Columbia, or by disseminating the advertisement in a prescribed manner, if

(a) concurrently with, or before, the earlier of the date of first publication or first dissemination of the advertisement, the offeror, or a person acting on its behalf, files and delivers the bid to the offeree issuer's principal office and files the advertisement,

(b) concurrently with, or before, the earlier of the date of first publication or first dissemination of the advertisement, the offeror, or a person acting on its behalf, requests from the offeree issuer a list of the holders of securities referred to in section 105 (a), and

(c) not later than the prescribed period after the offeror's receipt of the list of the holders of securities referred to in section 105 (a), the bid is delivered to those holders of securities in accordance with subsection (6) of this section.

(8) If a take over bid is commenced in accordance with subsection (7), the bid is deemed conclusively for the purposes of this Part and the regulations to have been dated as of the earlier of the date of first publication or first dissemination of the advertisement referred to in subsection (7).

(9) If a take over bid has been advertised in accordance with subsection (7), and the offeror, or a person acting on its behalf, has complied with paragraphs (a) and (b) of that subsection but has not yet delivered the bid under paragraph (c) of that subsection, a change or variation to it that is advertised in at least one major daily newspaper of general and regular paid circulation in British Columbia, or disseminated in a manner prescribed under subsection (7), is deemed conclusively for the purposes of this Part and the regulations to have been dated as of the earlier of the date of first publication or first dissemination of the advertisement if

(a) the advertisement contains a brief summary of the change or variation,

(b) concurrently with, or before, the earlier of the date of first publication or first dissemination of the advertisement, the offeror, or a person acting on its behalf, files and delivers the notice of change or variation to the offeree issuer's principal office and files the advertisement, and

(c) the offeror, or a person acting on its behalf, subsequently delivers the bid, and delivers the notice of change or variation, in accordance with subsection (6) and before the expiration of the period prescribed under subsection (7) (c).

(10) If an offeror, or a person acting on its behalf, satisfies the requirements of subsection (9), the notice of change or variation is not required to be filed and delivered under subsection (4).