NIN 98/60 - Proposed National Instrument 44-102, Companion Policy 44-102CP and Rule 44-802 - Shelf Distributions [NIN - Rescinded]
| Published Date: | 1998-10-02 |
|---|---|
| Effective Date: | 1998-10-01 |
NI 44-102 and the Companion Policy are initiatives of the CSA that would replace National Policy Statement No. 44 entitled "Rules for Shelf Prospectus Offerings and for Pricing Offerings after the Final Prospectus is Receipted" ("NP 44"), as it applies to shelf prospectus offerings. The Implementing Rule would implement NI 44-102 in British Columbia.
Proposed NI 44-102 is expected to be adopted as a rule in Alberta, British Columbia, Manitoba, Ontario and Nova Scotia, as a Commission regulation in Saskatchewan, and as a policy in all other jurisdictions, except Québec, represented by the CSA. The proposed Companion Policy is expected to be implemented as a policy in all jurisdictions, other than Québec, represented by the CSA. In Québec, the Commission des valeurs mobilières du Québec (the "CVMQ") has expressed agreement with the purpose and intent of NI 44-102, but does not propose to adopt NI 44-102 or the Companion Policy because Québec securities legislation provides procedures for shelf distributions. Proposed amendments to the Securities Act (Québec) (the "proposed amendments") will give the CVMQ the authority to make rules and, on the coming into force of the proposed amendments, the CVMQ will be conducting a review of Québec securities legislation to determine what changes are advisable in order to implement NI 44-102. If the proposed amendments are not in force at the time of implementation of NI 44-102, the CVMQ will consider all measures available, including a blanket order, in order to enable issuers to efficiently access the shelf prospectus system in Québec.
Background
NP 44, which came into effect on May 10, 1991, established a Canadian system for distributions using shelf prospectuses. A shelf prospectus can pertain to multiple offerings of securities over a period of up to two years. The shelf prospectus consists of a base shelf prospectus that may omit disclosure of terms of a particular shelf offering, together with one or more shelf prospectus supplements each containing supplementary disclosure concerning the particular offerings to which they relate.
NP 44 also established rules for the pricing of certain offerings after the issuance of the receipt for a prospectus. NP 44 provides flexibility and reduces the burdens, costs and time pressures for issuers seeking to raise capital under changing market conditions, while maintaining investor protection.
The CSA consider that the shelf distribution system established by NP 44 has operated efficiently and with minimal difficulties. In reformulating NP 44, the CSA have sought to preserve substantive consistency with the shelf distribution regime under NP 44.
The CSA have decided to separate the shelf distribution regime from the post-receipt pricing regime because the two regimes are not so closely related that they should be contained in a single instrument. Proposed NI 44-102 and its Companion Policy would carry forward the system established under NP 44 relating to shelf distributions, and proposed National Instrument 44-103 entitled "Post-Receipt Pricing" and its Companion Policy 44-103CP, which are concurrently being published for comment, would carry forward the regime established under NP 44 for pricing offerings after the final prospectus is receipted. Proposed NI 44-102 and 44-103, together with their Companion Policies and Implementing Rules, will replace NP 44 and BOR#91/2.
The CSA have considered regulatory and capital market developments since the implementation of NP 44 in 1991, including the implementation of National Policy Statement No. 47 entitled "Prompt Offering Qualification System" ("NP 47"), the increased use of derivative securities and changes in markets and regulation in the United States (NP47 is itself the subject of reformulation in proposed National Instrument 44-101 entitled "Prompt Offering Qualification System" ("NI 44-101"), published for comment on February 20, 1998).
As a result of these considerations, the CSA propose to extend the Canadian shelf distribution system to reflect Canadian experience with derivative securities and the US experience with the use of an "unallocated" shelf prospectus that pertains to more than one type of securities. Aspects of NP 44 that duplicate provisions relating to the prompt offering qualification ("POP") system are not carried forward in NI 44-102 but instead will be dealt with in NI 44-101. Except to the extent expressly varied by NI 44-102, the requirements of Canadian securities legislation applicable to all distributions, and the requirements of the POP system in particular, will apply to shelf distributions. Provisions of NP 44 that are relevant to shelf distributions but omitted from NI 44-102 and the Companion Policy are identified in the Appendix to this Notice.
Substance and Purpose of NI 44-102 and Companion Policy
NI 44-102 and the Companion Policy would reformulate and replace NP 44 as it relates to shelf distributions, maintaining the substance of the shelf distribution system while adding clarity, operational efficiency and opportunities for access to the system.
In British Columbia, the Implementing Rule would implement NI 44-102 in much the same manner as BOR#91/2 that implemented NP 44.
NI 44-102 contains mandatory aspects of the shelf distribution system under NP 44 and the local implementing order or ruling. Aspects of NP 44 relating to shelf distributions that are interpretive in nature or describe the administrative processes of the Canadian securities regulatory authorities are included in the Companion Policy. The Implementing Rule contains exemptions from certain Securities Act requirements necessary to implement NI 44-102.
Terms used in the Companion Policy or Implementing Rule that are defined or interpreted in NI 44-102 or a definition instrument in force in a jurisdiction (and not otherwise defined in the Companion Policy or Implementing Rule) should be read in accordance with NI 44-102 or the definition instrument, unless the context otherwise requires.
Summary of Proposed NI 44-102 and Companion Policy
Proposed NI 44-102 sets out the requirements for the shelf distributions. Some of the key aspects of proposed NI 44-102 follow:
- Eligibility to use Shelf Distribution
An issuer may file a preliminary base shelf prospectus if, at the time of filing, the issuer is eligible to participate in the POP system under a corresponding provision of NI 44-101. Differing eligibility criteria apply to differing categories, including substantial Canadian issuers, reorganizations, securities with approved ratings and guaranteed securities.
NI 44-102 would continue to prohibit the use of the shelf procedures for a distribution of rights under a rights offering because the CSA may wish to review in advance the pricing of a rights offering.
- Asset-backed and Novel Derivative Securities. NI 44-102 allows the use of shelf for asset-backed and derivative securities without the need for a specific exemption. The CSA attempted to balance the flexibility of the shelf procedures with investor protection by applying procedural safeguards where the securities are "novel" -- having characteristics not previously described in a prospectus for which a receipt has been issued in Canada.
An issuer or selling securityholder that wishes to be able to distribute novel specified derivatives or asset-backed securities under a base shelf prospectus would be required to file an undertaking not to distribute specified derivatives or asset-backed securities that (at the time of distribution) are novel, without pre-clearing with the regulator the disclosure to be contained in the relevant shelf prospectus supplement. The distribution could not proceed unless regulators’ comments are addressed or no comments have been issued within 15 business days.
- Unallocated Shelf Prospectus. NI 44-102 introduces to the Canadian shelf distribution system the concept of an "unallocated" base shelf prospectus that pertains to more than one type of security for which the issuer is eligible to participate in the POP system. NP 44 currently restricts a base shelf prospectus to a single type of security such as debt, preferred shares or common shares.
The unallocated shelf prospectus adds to the flexibility of the shelf procedures, particularly in connection with distributions of equity securities, by addressing issuers’ concerns about the "market overhang" effect of fully-allocated shelf prospectuses.
To address concerns with pre-marketing of equity securities discussed in CSA Notice #93/3, NI 44-102 would require the announcement by news release of the intention to proceed with a distribution of equity securities once discussions between the issuer or selling securityholder and an underwriter reach sufficient specificity that it is reasonable to expect that the distribution will proceed.
- Base Shelf Prospectus. As under NP 44, a base shelf prospectus must contain certain specified disclosure, including information about the securities that can be distributed and the aggregate dollar amount of securities reasonably expected to be distributed within 24 months after the date of the receipt for the base shelf prospectus (under NP 44, this period commences on the date of filing of the base shelf prospectus).
NI 44-102 specifies the disclosure that may be omitted from a base shelf prospectus, such as variable terms of securities, the dollar amount and size of each tranche of securities that may be distributed, variable terms of the plan of distribution and the name and prospectus certificate of the underwriter.
- Shelf Prospectus Receipt. The receipt for a final base shelf prospectus will generally be effective until two years from the date of issue. However, if the relevant eligibility criteria are not satisfied at the time of the proposed distribution, the receipt will expire. In addition, in certain jurisdictions the receipt will lapse one year from the date of issue. In those jurisdictions, specific relief may be required. In British Columbia, the proposed Implementing Rule provides an exemption from the usual one-year lapse date for a shelf prospectus filed in accordance with NI 44-102.
- Amendment. Similar to NP 44, NI 44-101 continues to require that a prospectus for which a receipt has been issued and under which distribution has not ended must generally be amended to reflect material changes. However, in the case of a base shelf prospectus, NI 44-102, like NP 44, would permit the amendment to be effected: (i) if the material change occurs during a period in which no securities are being distributed under the base shelf prospectus, through incorporation by reference of a material change report disclosing the change; and (ii) if the material change occurs at a time when securities are being distributed under the base shelf prospectus, by the filing of a material change report, accompanied by certificates, disclosing both the change and that the base shelf prospectus is thereby amended.
- Shelf Prospectus Supplement. The requirements for a shelf prospectus supplement under NI 44-102 are generally consistent with those under NP 44. A shelf prospectus supplement must, generally, be filed within two days after it is first used and must be delivered to purchasers. Under NI 44-102, reflecting implementation of SEDAR, filing is to be effected concurrently in all relevant jurisdictions, a change from NP 44.
- Medium Term Notes. Like NP 44, NI 44-102 continues to allow Shelf procedures to be used for medium term note ("MTN") programs, which can be established either in a base shelf prospectus or in a shelf prospectus supplement.
Final pricing and other terms pertaining to a particular tranche of MTNs may be disclosed in a pricing supplement, which supplements the base shelf prospectus and relevant shelf prospectus supplement, if any.
Pricing supplements or (in a departure from NP 44) a summary of their terms must be filed within seven days after the end of the month in which they are used.
The proposed Companion Policy provides views of the Canadian securities regulatory authorities on matters relating to shelf distributions, including eligibility criteria, information that may be omitted from a base shelf prospectus, distributions of derivatives and asset-backed securities, use of an unallocated shelf prospectus, use of shelf prospectus supplements and amendments, expiry of base shelf prospectus receipts and firm commitment and best efforts distributions.
The Implementing Rule provides specific exemptions from prospectus and other requirements of the Securities Act to implement NI 44-102 in British Columbia. As noted above, the Implementing Rule would exempt a shelf distribution made in accordance with NI 44-102 from the one-year lapse date ordinarily applicable to a prospectus, with the result that no specific application for relief from that lapse date would be required in British Columbia. Such relief may, however, be required in other jurisdictions, as discussed in section 3.1 of the Companion Policy.
Consequential Changes
National Instrument 13-101 entitled "System for Electronic Document Analysis and Retrieval (SEDAR)" would be amended to substitute references to NI 44-102 for existing references to NP 44.
In addition, the Commission will recommend amendments to section 22 of the Securities Regulation under the Securities Act to substitute references to NI 44-102 for existing references to NP 44 and change existing references to "MTN program" to refer more broadly to a continuous distribution under Part 8 of NI 44-102.
Comments
Interested parties are invited to make written submissions with respect to proposed NI 44-102, the Companion Policy and the Implementing Rule. Submissions received by January 8, 1999 will be considered.
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:
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
Department of Government Services and Lands, Newfoundland and Labrador
Registrar of Securities, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon Territoryc/o Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario M5H 3S8
Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows
Claude St Pierre, General Secretary
Commission des valeurs mobilières du Québec
800 Victoria Square
Stock Exchange Tower
P.O. Box 246, 17th Floor
Montréal, Québec H4Z 1G3
A diskette containing the submissions (in DOS or Windows format, preferably WordPerfect) should also be submitted. As securities legislation in certain provinces requires that a summary of the written comments received during the comment period be published, confidentiality of submissions received cannot be maintained.
Questions may be referred to any of:
Stephen Murison
Legal Counsel
Alberta Securities Commission
Telephone: (403) 297-4233
Agnes Lau
Deputy Director, Security Analysis
Alberta Securities Commission
Telephone: (403) 422-2191
Brenda Benham
Director, Policy & Legislation
British Columbia Securities Commission
Telephone: (604) 899-6635
Barbara Shourounis
Director
Saskatchewan Securities Commission
Telephone: (306) 787-5842
Susan Wolburgh Jenah
Manager, Market Operations
Ontario Securities Commission
Telephone: (416) 593-8245
Iva Vranic
Legal Counsel, Market Operations
Ontario Securities Commission
Telephone: (416) 593-8115Rosetta Gagliardi
Policy Advisor
Commission des valeurs mobilières du Québec
Telephone: (514) 873-5326
Bill Slattery
Deputy Director of Corporate Finance & Administration
Nova Scotia Securities Commission
Telephone: (902) 424-7355
DATED at Vancouver, British Columbia, on October 1, 1998.
Douglas M. Hyndman
Chair