NIN 99/40 - The Canadian Venture Exchange - Recognition and Related Instruments [NIN - Rescinded]

The Commission has approved in principle the recognition of the proposed Canadian Venture Exchange Inc. ("CDNX") as an exchange in British Columbia and for certain specific purposes under the Act and Securities Rules. This notice discusses the impact of recognition of CDNX on existing instruments and summarizes new instruments to be adopted concurrently with the recognition of CDNX.

Creation of CDNX

On March 15, 1999, the Vancouver Stock Exchange (the "VSE"), the Alberta Stock Exchange (the "ASE"), the Toronto Stock Exchange (the "TSE") and the Montreal Exchange (the "ME") announced that they had signed a Memorandum of Agreement ("MOA") setting out the terms of a restructuring of the exchanges.

As part of the restructuring, the VSE and ASE agreed to merge to create CDNX. A number of conditions must be satisfied to complete the merger, including approval of the respective members of the VSE and ASE and adoption of legislation in Alberta. The VSE and ASE expect to obtain the required members’ approvals and have the necessary legislation adopted in Alberta on or before November 26, 1999. Provided that the merger is completed on or before November 26, 1999, CDNX intends to begin trading securities of those issuers formerly listed on the VSE and ASE on November 29, 1999.

Recognition of CDNX

The VSE and ASE, on behalf of CDNX, have applied to the Commission for recognition of CDNX as an exchange in British Columbia under section 24(2) of the Act. Among other things, the VSE and ASE have represented to the Commission that, as a result of the merger, CDNX will retain the rights and assume the obligations of the VSE and ASE.

On satisfaction of certain conditions precedent and based on the application filed and representations made by the VSE and ASE to the Commission, the Commission will recognize CDNX under section 24(2) of the Act and issue a recognition document on completion of the merger.

Concurrently with recognition of CDNX under section 24(2) of the Act, the Commission will also recognize CDNX for the following specific purposes:

• The definition of "exchange issuer" in section 1(1) of the Act;
• The prospectus exemptions in sections 75(b)(i) and 75(b)(ii) of the Act and section 89(d)(ii) of the Securities Rules;
• The issuer bid and take over bid exemptions in sections 98(1)(a) and 99(e) of the Act; and
• The membership requirement for underwriters in section 89(d)(ii) of the Securities Rules.

Impact of Recognition on Existing Instruments

Existing orders, policies, notices and other instruments of the Commission may refer to the VSE or ASE or both. As circumstances permit, the Commission will be revising these instruments, proposing amendments to the Securities Rules and seeking amendments to the Act to reflect the merger of the VSE and ASE and the recognition of CDNX.

The VSE and ASE have advised the Commission that CDNX will succeed the VSE and ASE as a result of the merger by operation of law. On the basis that CDNX is the successor entity to the VSE and to the extent that the Commission recognizes CDNX for the same purposes that the VSE is currently recognized, references to the VSE in existing instruments can be read to refer to CDNX in the interim period.

Concurrently with the recognition of CDNX, however, the Commission plans to re-issue the following instruments:

• BOR#88/2 - Issuers Not Included in the Definition of Exchange Issuer; and
• Local Policy Statement 3-44 - Recognition of Self Regulatory Body, Exchanges and Jurisdictions.

BOR#88/2 - Issuers Not Included in the Definition of Exchange Issuer

In BOR#88/2, issuers whose securities are listed on the VSE and are listed or quoted on any other exchange or trade and quotation system in Canada are excluded from the definition of "exchange issuer" in section 1(1) of the Act.

As CDNX will be recognized for the purposes of the definition of "exchange issuer" in section 1(1) of the Act, the Commission will issue a new order (numbered in accordance with the national numbering system, likely as BOR#14-501 (B.C.)) to replace BOR#88/2 so that "CDNX" replaces the references to the "VSE". In other words, the new order will exclude from the definition of "exchange issuer" in section 1(1) of the Act issuers whose securities are listed on the CDNX and are listed or quoted on any other exchange or trade and quotation system in Canada.

Local Policy Statement 3-44 - Recognition of Self Regulatory Body, Exchanges and Jurisdictions

In Local Policy Statement 3-44 ("LPS 3-44"), the Commission recognizes certain exchanges, a self regulatory body and jurisdictions for the purpose of various sections of the Act and the Securities Rules.

As CDNX will be recognized as an exchange in British Columbia and for certain specific purposes of various sections of the Act and the Securities Rules, the Commission will replace LPS 3-44 with a new policy (numbered in accordance with the national numbering system, likely as Local Policy Statement 21-601 (B.C.) - Recognition of Exchanges, Self Regulatory Bodies and Jurisdictions).

New Instruments Related to Recognition

On recognition of CDNX, the Commission is planning to

• Issue a blanket order to provide transitional relief to maintain the status quo for new reporting and exchange issuers;
• Repeal Local Policy Statement 3-17 - Registrant Due Diligence; and
• Issue a blanket order to provide a registration exemption for certain members of the ASE, TSE and ME that may be trading securities through the facilities of CDNX.

Transitional Blanket Relief for Issuers and Other Persons

On recognition of CDNX under section 24(2) of the Act, issuers formerly listed on the ASE that were not already reporting issuers in British Columbia will become reporting issuers (the "new reporting issuers"). Further, on recognition of CDNX as an exchange for the purposes of the definition of an "exchange issuer" under section 1 of the Act, issuers formerly listed on the ASE (and not listed on another Canadian exchange) would become "exchange issuers" (the "new exchange issuers").

The VSE and ASE proposed that the Commission provide relief to minimize potential increases in compliance costs and regulatory fees during a transition period. The Commission has approved in principle the proposal to preserve the "status quo" in respect of these new reporting issuers and new exchange issuers for a transition period. The order will become effective on the same day that CDNX is recognized under section 24(2) of the Act.

Staff is currently working on the form of this order and anticipates that the Commission will publish the order in the Weekly Summary and place the order on the Commission’s web site (www.bcsc.bc.ca) on or before the planned merger date (i.e., November 26, 1999). Staff is also working with staff of the Alberta Securities Commission ("ASC") as the ASC is expected to provide equivalent blanket relief for new reporting issuers in Alberta.

In effect, the blanket order would exempt the new exchange issuers from the definition of "exchange issuer" and would provide certain exemptions from disclosure obligations for the new reporting issuers and other persons. Specifically, it is expected that the order would

• Exempt new reporting issuers from the requirements to issue a press release disclosing material changes and file material change reports (s. 85 Act); file annual and interim financial statements (ss. 144 and 145 Rules) and file a notice of change in financial year end (s. 146 Rules);
  
• Exempt persons soliciting proxies from securityholders of new reporting issuers from the requirement to file and deliver proxy circulars in the form required under the Act (s. 117 Act and s. 184 Rules);
  
• Exempt insiders of the new reporting issuers from the requirement to file insider trading reports (s. 87 Act); and
  
• Exempt offerors from requirements to issue a press release and file an acquisition report disclosing certain threshold acquisitions of securities (ss. 111 and 112 Act).
  
  It is also expected that the exemptions would only apply provided that
  
• The new reporting issuer is a reporting issuer under the Alberta Securities Act ("ASA") and the exempted person is in compliance with the equivalent requirements under the ASA. In addition, the issuer must file at the same time with the Commission the documents required to be filed under the ASA;
  
• The new reporting issuer gives up the benefits that otherwise are available to reporting issuers. For new reporting issuers, these benefits are certain prospectus exemptions and the ability to satisfy the reporting issuer status or seasoning requirement in the resale rules;
  
• The new reporting issuer has not distributed securities under a prospectus or qualified as reporting issuer under the Act other than by virtue of its securities being listed on CDNX;
  
• The transition period has not expired - i.e., expected to be somewhere between 16 months and two years; and
  
• The issuer has not opted-out. A new reporting issuer or a new exchange issuer would be permitted to opt-out of the order to the extent that it desired to become an exchange issuer or to obtain the benefits and be subject to the burdens of reporting issuer status in British Columbia.

Repeal of Local Policy Statement 3-17 - Registrant Due Diligence

On January 6, 1995, Local Policy Statement 3-17 ("LPS 3-17") came into effect in British Columbia. LPS 3-17 requires an underwriter of a junior issuer to prepare a due diligence report setting out the due diligence procedures undertaken by the underwriter. LPS 3-17 also requires the underwriter, in certain circumstances, to retain an independent qualified consultant to prepare an assessment report and sets out minimum review procedures that the consultant must undertake. These requirements are all unique to British Columbia.

On January 1, 1996, the Commission separated underwriter registration from the dealer category of registration. Further, CDNX's sponsorship policy will require sponsors to have qualifications similar to registered underwriters and to conduct minimum review procedures and prepare a sponsorship report in a manner that is not materially different from what is required by LPS 3-17. As a result, the Commission intends to repeal LPS 3-17 on the same day that CDNX is recognized under section 24(2) of the Act.

Registration Exemption for Certain ASE, TSE and ME Members

Under the terms of the MOA, each exchange agreed to allow members of the other Canadian exchanges to access their trading facilities without becoming members of that exchange. In order to facilitate that access, the Commission will issue a blanket order (numbered in accordance with the national numbering system, likely as BOR#35-501). That blanket order will allow an SRO member that is entitled to trade on another Canadian exchange - including its registered partners, directors, officers and salespersons - to trade on CDNX on their own behalf or on behalf of clients outside of British Columbia, by using a computer terminal outside British Columbia.

Questions

Questions may be referred to: