NIN 99/17 - Securities Amendment Act, 1999 [NIN - Rescinded]

Published Date:	1999-06-04
Effective Date:	1999-06-02

Bill 64, the Securities Amendment Act, 1999 (the "Bill 64") received First Reading on May 20, 1999. A copy of Bill 64 is attached and can also be found at the Legislative Assembly website at www.legis.gov.bc.ca under "Bills". If passed by the Legislature, it will come into effect when it receives Royal Assent.

The purpose of Bill 64 is to increase investor protection and to make certain streamlining amendments to provide uniform regulation with other jurisdictions.

Major Investor Protection Amendments

Commission Power to Apply to Court for Reimbursement of Investors

The amendments to section 157 would permit the Commission to apply for certain Court orders that would allow aggrieved investors to recoup losses suffered as a result of others’ non-compliance with securities legislation. The amendment would harmonize B.C.’s legislation with existing or proposed legislation in other major Canadian jurisdictions and enhance investor protection in B.C. The commission could apply for this remedy in cases where it considers that it would be in the public interest for the Commission to bring the action. The Commission’s mandate is to protect the public and enhance market efficiency. The Commission has neither resources nor the mandate to take on cases on behalf of all aggrieved investors. The Commission will only take on those cases that enhance its mandate to protect the public as a whole.

Expansion of Prohibitions on Fraud and "Market Manipulation"

The amendments to section 57 and the addition of new section 57.1 would expand the existing prohibitions on fraud and market manipulation to cover securities of any issuer. The prohibition is currently limited in some circumstances to securities of reporting issuers or trading on an exchange in British Columbia. This amendment provides Securities Act protection in response to the increasing participation by B.C. residents in foreign markets, including the U.S. over-the-counter markets, and ensures that the Commission can deal effectively with fraud and manipulation in those markets that affect B.C. residents or that are perpetrated by B.C. residents.

Material False or Misleading Statements

The amendments to section 155, combined with new section 168.1, would expand the offence provisions so that any material false or misleading statement or omission - not just one that affects the market price or value of securities - is a contravention of, and offence under, the Securities Act. This amendment would bring the legislation in B.C. more closely in line with the legislation in Ontario.

Clarify Commission’s Jurisdiction

Bill 64 would clarify the Commission’s jurisdiction in two ways.

First, the amendments to section 4 would confirm the jurisdiction of the Commission to decide questions of law. This amendment is intended to prevent the undue interruption and delay of Commission proceedings as a result of petitions to the Supreme Court of British Columbia and to clarify for the Court that the determination of Charter challenges or other legal questions raised during the course of a Commission hearing can be properly dealt with by the Commission. Any determinations by the Commission under this authority could be appealed to the Court of Appeal, with leave of the Court.

Second, new section 168.2 would clarify that a director, officer, employee or agent who authorizes, permits or acquiesces in a company’s or other entity’s contravention of securities legislation is subject to administrative sanctions imposed by the Commission as well as quasi-criminal offences under the Act.

Streamlining Amendments

Bill 64 also makes a number of amendments to clarify the Act and harmonize the legislation in certain areas with legislation in other jurisdictions. Specifically, Bill 64 would:

• amend the definitions of futures contract and mutual fund to allow the Commission to exclude financial instruments that should not be subject to the special regulation that applies to those products (sections 1, 3.1 and 3.2);
  
• amend registration and prospectus exemptions to simplify the process for exempt purchasers, amalgamations and dividend reinvestment plans (sections 45 and 74);
  
• amend the registration approval and prospectus receipt processes to permit the more efficient operation of a mutual reliance system between the Commission and regulators in other provinces (sections 35 and 61);
  
• recognize changes in business practices by allowing the Commission to require that information be provided in electronic form (section 141); and
  
• amend the Commission’s rule making authority to allow adoption of an integrated system of disclosure to simplify the offering process and to reduce the artificial distinctions between disclosure in primary and secondary markets. (s. 183).

The Commission will issue a further notice when Bill 64 receives Royal Assent and comes into effect.

Questions may be directed to

Brenda Benham
Director, Policy and Legislation
British Columbia Securities Commission
(604) 899-6635
or (800) 373-6393 (in B.C.)
E-mail: bbenham@bcsc.bc.ca

DATED at Vancouver, British Columbia, on June 2, 1999.

Douglas M. Hyndman
Chair

1Section 1 (1) of the Securities Act, R.S.B.C. 1996, c. 418, is amended

(a) by adding the following definition:

"commodity" means

(a) any good, article, service, right or interest of which any unit is, from its nature or by mercantile custom, treated as the equivalent of any other unit,
(b) the currency of any jurisdiction,
(c) a gem, gemstone, or other precious stone, or
(d) any other prescribed good, article, service, right or interest, or a class of any of those;,

(b) by repealing the definitions of"futures contract"and"mutual fund"andsubstituting the following:

"futures contract" means any obligation to make or take future delivery of

(a) a commodity,
(b) a security, or
(c) cash if the amount of cash is derived from, or by reference to, a variable including

(i) a price or quote for a commodity or security,
(ii) an interest rate,
(iii) a currency exchange rate, or
(iv) an index or benchmark,

but does not include an obligation, or a class of obligations, described in an order that the commission may make under section 3.1;

"mutual fund" includes

(a) an issuer of a security that entitles the holder to receive on demand, or within a specified period after demand, an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets, including a separate fund or trust account, of the issuer of the security,
(b) an issuer described in an order that the commission may make under section 3.2, and
(c) an issuer that is in a class of prescribed issuers, but does not include an issuer, or a class of issuers, described in an order that the commission may make under section 3.1; ,

(c) in the definition of"regulation"by striking out "155 (1) (f),"and substituting "155 (1) (d),",

(d) in paragraph (d) of the definition of"reporting issuer"by striking out "a corporation" and substituting "an issuer", by striking out each subsequent reference to "corporation"and substituting "issuer" and by repealing paragraph (f) and substituting the following:

(f) has filed a securities exchange take over bid circular under this Act or the regulations for the acquisition of securities of a reporting issuer and has taken up and paid for securities subject to the bid in accordance with the circular, , and

(e) in the definition of"trade"by repealing paragraphs (b) and (c) and substituting the following:

(a.1) entering into a futures contract,
(b) entering into an option that is an exchange contract,
(c) participation as a trader in a transaction in a security or exchange contract made on or through the facilities of an exchange or reported through the facilities of a quotation and trade reporting system,.

2Part 1 is amended by adding the following sections:

Exemption orders

3.1 (1) If the commission considers that to do so would not be prejudicial to the public interest, the commission may, for the purposes of this Act and the regulations, order that

(a) an obligation, or a class of obligations, is not a futures contract, or
(b) an issuer, or a class of issuers, is not a mutual fund.

(2) An order under subsection (1) may be made on application by an interested person or on the commission’s own motion.

Designated mutual funds

3.2 (1) If the commission considers it to be in the public interest, the commission may, for the purposes of this Act and the regulations, order that an issuer is a mutual fund.

(2) An order under subsection (1) may be made on application by an interested person or on the commission’s own motion.

3Section 4 is amended by adding the following subsection:

(9.1) The commission may decide all questions of fact or law arising in the course of a hearing.4Section 9 (c) is amended by adding "of its members, and the remuneration"after "determine the remuneration".

5Section 15 (1) is amended

(a) by adding "from administrative penalties under section 162 and any cost recoveries under this Act, but not including revenue"after "limited to revenue", and
(b) in paragraph (a) by striking out "from administrative penalties under section 162 and any cost recoveries under this Act, but not including revenue".

6The following section is added:

Designated exchange

25.1 (1) If a person is not carrying on business as an exchange, but is carrying on business as a quotation and trade reporting system, or is otherwise facilitating transactions of securities or exchange contracts, the commission may, if it considers it to be in the public interest, order that

(a) the person is an exchange for the purposes of this Act and the regulations, and
(b) the person must not carry on business as a quotation and trade reporting system, or facilitate transactions of securities or exchange contracts, unless the person is recognized by the commission under section 24 (2).

(2) An order under subsection (1) may be made on application by an interested person or on the commission’s own motion.

7Section 35 (1) is repealed and the following substituted:

(1) Subject to subsection (2), the executive director must grant an applicant registration, renewal or reinstatement of registration or an amendment to registration, as the case may be, unless

(a) the executive director considers that the applicant is not suitable for registration in the capacity applied for, or that the proposed registration is objectionable, or
(b) the applicant has not paid the prescribed fee.

8Section 40 is repealed and the following substituted:

Termination or suspension of employment

40 If the employment of an individual registrant is terminated or suspended, the registration of the individual registrant is immediately suspended until the executive director reinstates the registration.

9Section 42 is amended in subsections (1) (e), (2) (d) and (3) (b) by striking out"material change"and substituting "significant change".

10Section 45 (2) is amended

(a) by repealing paragraph (4) and substituting the following:

(4) a trade to a person that

(i) purchases as principal, and
(ii) is designated as an exempt purchaser in an order that the executive director may make for the purpose of this paragraph; ,

(b) in paragraph (9) (iv) by striking out "under applicable legislation",

(c) in paragraph (9) (v) by striking out "in accordance with the requirements of the applicable legislation", and

(d) in paragraph (11) (i) by striking out everything before clause (A) and substituting the following:

(i) permits the holder to direct that dividends, interest or distributions of capital gains paid in respect of securities of the issuer’s own issue be applied to the purchase of .

11Section 47 is amended by striking out "34 (1)"and substituting "34 (1) (a)".

12Section 50 (1) (c) is amended

(a) in subparagraph (i) by adding "or quoted on any quotation and trade reporting system" after "exchange", and
(b) in subparagraph (ii) by adding "or quote the security on any quotation and trade reporting system" after "exchange".

13Section 57 is repealed and the following substituted:

Prohibited transactions relating to trading in British Columbia

57 A person in or outside British Columbia must not, directly or indirectly, engage in or participate in a transaction or series of transactions relating to a trade in or acquisition of a security or a trade in an exchange contract if the person knows, or ought reasonably to know, that the transaction or series of transactions

(a) results in or contributes to a misleading appearance of trading activity in, or an artificial price for, any security or exchange contract traded in British Columbia,
(b) perpetrates a fraud on any person in British Columbia, or
(c) perpetrates a fraud on any person anywhere in connection with trading in or acquiring securities, or trading in exchange contracts, in British Columbia.

14The following section is added to Part 7:

Prohibited transactions by persons in British Columbia

15Section 61 is repealed and the following substituted:

Prospectus required

61 (1) Unless exempted under this Act or the regulations, a person must not distribute a security unless

(a) a preliminary prospectus and a prospectus respecting the security have been filed with the executive director, and
(b) the executive director has issued receipts for the preliminary prospectus and prospectus.

(2) A preliminary prospectus and a prospectus must be in the required form.

16Section 62 is repealed and the following substituted:

Voluntary filing of prospectus

62 Even though a person is not distributing securities, a preliminary prospectus and a prospectus that are in the required form may be filed for

(a) the purpose of enabling the issuer to become a reporting issuer, or
(b) any other prescribed purpose.

17Section 68 is amended by adding the following subsection:

(6) The executive director may permit an issuer to vary the form or content of the certificate required by subsection (1).

18Section 69 is amended by adding the following subsection:

(3) The executive director may permit an underwriter to vary the form or content of the certificate required by subsection (1).

19Section 71 (2) is amended by striking out "under subsection (1)"and substituting "under subsection (1) of this section".

20Section 74 (2) is amended

(a) by repealing paragraph (3) and substituting the following:

(3) the trade is made to a person that

(i) purchases as principal, and
(ii) is designated as an exempt purchaser in an order that the executive director may make for the purpose of this paragraph; ,

(b) in paragraph (8) (iv) by striking out "under applicable legislation",

(c) in paragraph (8) (v) by striking out "in accordance with the requirements of the applicable legislation",

(d) in paragraph (10) (i) by striking out everything before clause (A) and substituting the following:

(i) permits the holder to direct that dividends, interest or distributions of capital gains paid in respect of securities of the issuer’s own issue be applied to the purchase of , and

(e) in paragraph (17) by striking out "the security"and substituting "a security".

21Section 99 (a) is amended by striking out "if" before "the securities are acquired".

22Section 104 (1) is amended by striking out "Except pursuant to a bid," and substituting "Except pursuant to the bid,".

23Section 131 is amended

(b) by repealing subsection (16).

24Section 141 is amended

25Section 148 (1) is amended by adding "or sought to be obtained"after "evidence obtained".

26Section 152 (4) (a) is amended by striking out "must be"and substituting "is".

27Section 155 is amended

(a) by repealing subsection (1) and substituting the following:

(1) A person who does any of the following commits an offence:

(a) fails to file, provide, deliver or send a record that

(i) is required to be filed, provided, delivered or sent under this Act or the regulations, or
(ii) is required to be filed, provided, delivered or sent under this Act or the regulations within the time required under this Act or the regulations;

(b) contravenes any of section 29 (6), 34, 39 (6), 49 to 57, 57.1, 58, 59, 61, 70 (1), 85 to 87, 100 to 112, 117 (1) and (2), 121, 122, 124, 125, 127, 128, 143 (7), 148, 153 (3) or 168.1 (1) of this Act;

(c) fails to comply with a decision made under this Act;

(d) contravenes any of the provisions of the regulations that are specified by regulation for the purpose of this paragraph;

(e) contravenes any of the provisions of the commission rules that are specified by regulation for the purpose of this paragraph. , and

(b) by repealing subsection (3).

28Section 157 is amended

(a) by repealing subsection (1) and substituting the following:

(1) In addition to any other powers it may have, if the commission considers that a person has contravened or is contravening a provision of this Act or of the regulations, or has failed to comply or is not complying with a decision, and the commission considers it in the public interest to do so, the commission may apply to the Supreme Court for one or more of the following:

(a) an order that

(i) the person comply with or cease contravening the provision or decision, and
(ii) the directors and senior officers of the person cause the person to comply with or to cease contravening the provision or decision;

(b) an order that the person pay to the minister for payment into the consolidated revenue fund one or both of the following:

(i) any money obtained by the person directly or indirectly as a result of the failure to comply or the contravention;
(ii) the amount of any payments or losses avoided by the person directly or indirectly as a result of the failure to comply or the contravention;

(c) an order setting aside a transaction relating to trading in securities or exchange contracts;
(d) an order that a security or exchange contract be issued or cancelled;
(e) an order that a security or exchange contract be purchased, disposed of or exchanged;
(f) an order prohibiting the voting of a security or the exercise of a right attaching to a security or exchange contract;
(g) an order appointing a director of the person that is the subject of the application;
(h) an order that the person repay a holder of a security or an exchange contract money paid by the holder for the security or exchange contract;
(i) an order that the person compensate or make restitution to any other person;
(j) an order that the person pay general or punitive damages to any other person. ,

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

(2) On an application under subsection (1), the Supreme Court may make the order applied for and any other order the court considers appropriate. , and(c) in subsection (3) by striking out "violation" and substituting "contravention".

29Section 161 (1) (b) is amended by adding "any securities or exchange contracts," after "prohibited from purchasing,".

30The following sections are added:

False or misleading statements prohibited

168.1 (1) A person must not

(a) make a statement in evidence or submit or give information under this Act or the regulations to the commission, the executive director or any person appointed under this Act or the regulations that, in a material respect and at the time and in light of circumstances under which it is made, is false or misleading, or omit facts from the statement or information necessary to make that statement or information not false or misleading, or

(b) make a statement or provide information in any record required to be filed, provided, delivered or sent under this Act or the regulations that, in a material respect and at the time and in light of circumstances under which it is made, is false or misleading, or omit facts from the statement or information necessary to make that statement or information not false or misleading.

(2) A person does not contravene subsection (1) if the person

(a) did not know, and

(b) in the exercise of reasonable diligence, could not have known
that the statement or information was false or misleading.

Contraventions attributable to employees,officers, directors and agents

31Section 183 is amended

(a) by repealing paragraph (12) and substituting the following:

(12) respecting any matter necessary or advisable to carry out effectively the intent and purpose of Part 9, including, but not limited to,

(i) prescribing disclosure requirements in respect of distributions, including the use of particular forms or of particular types of documents,
(ii) prescribing procedures for distributions of securities on an expedited basis including modifying or varying the application of this Act as may be necessary for the purpose of permitting expedited distributions to occur,
(iii) prescribing circumstances in which a record may be, or is deemed to be, incorporated by reference into any other record,
(iv) prescribing procedures respecting the issuance of receipts,
(v) prescribing periods in which receipts, or classes of receipts, are effective and circumstances in which receipts, or a class of receipts, may be revoked,
(vi) prescribing circumstances in which a distribution of securities may occur on a continuous or delayed basis,
(vii) prescribing additional requirements that must be satisfied before a receipt may be issued or before a distribution may occur,
(viii) establishing, for the purposes of section 162, that a contravention of an undertaking given by an issuer constitutes a contravention of the regulation requiring the undertaking, and
(ix) varying the form and content of the certificates required by sections 68 and 69 and prescribing additional classes of persons that are required to sign a certificate required by section 68 or 69; ,

(b) in paragraph (19) by striking out "and"at the end of subparagraph (ii) and by adding the following subparagraphs:

(iv) prescribing procedures for the integration of the disclosure required under Part 9 with that required under Part 12 including modifying or varying the application of this Act as may be necessary for the purpose of permitting integrated disclosure, and
(v) prescribing disclosure requirements, including the use of particular forms or of particular types of documents; ,

(c) in paragraph (36) by inserting "or a quotation and trade reporting system"after "recognize an exchange",
(d) in paragraph (48) by striking out "155 (1) (f)" wherever it appears and substituting "155 (1) (d)", and
(e) in paragraph (49) by striking out "155 (1) (g)"wherever it appears and substituting "155 (1) (e)".