Proposed TSX Company Manual amendments create tailored listing regime for non-corporate issuers

Darin Renton and Junaid Subhan - 

On January 15, 2015, the Toronto Stock Exchange (TSX) published for comment proposed public interest amendments to the TSX Company Manual (the Manual) in respect of Non-Corporate Issuers, comprising Exchange Traded Products (ETPs), Closed-end Funds and Structured Products, by introducing a new Part XI to the Manual and amending Part I of the Manual (the Amendments). The proposed Amendments relate to the listing of and transactions undertaken by Non-Corporate Issuers.

Many of the Amendments codify existing TSX practice. 

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TSX proposes new listing regime for closed-end funds and exchange traded and structure products

Philip Henderson and Darin Renton - 

The regulatory landscape for structured products in Canada continues to evolve with the Toronto Stock Exchange proposing new and tailored listing requirements last week for various types of structured entities and products.

Specifically, the amendments to the TSX Company Manual would facilitate the listing of three distinct new categories of issuers or products referred to in the proposal as "closed-end funds", "exchange traded products" and "structured products". The requirements would include tailored minimum listing requirements as well as requirements associated with the general issuance of securities, supplemental listings, management fees, security holder approvals, terminations and voluntary delistings, and continued listing requirements.

Citing the fundamental differences in the trading, liquidity and ability to raise additional funds among the three different product categories, the TSX is proposing certain differing standards for each, such as a minimum market capitalization or IPO raise of $1 million for exchange traded and structured products, and $20 million for closed-end funds.

Comments on the proposals are being accepted until March 16, 2015.

IIROC describes expectations regarding sale of PPNs

The Investment Industry Regulatory Organization of Canada yesterday released a guidance note setting out its expectations regarding application of know your client and suitability obligations to dealings in principal protected notes (PPNs) by IIROC dealer members. The guidance follows publication of a CSA staff notice (excluding Quebec) this past August that described the CSA's expectations that deposit-taking institutions will use registered dealers and individuals to distribute all PPNs that are not “Specified PPNs,” being those with a term of five years or less.

IIROC Dealer Member Rule 18.14 allows registered representatives and investment representatives to engage in another gainful occupation provided certain conditions are met, effectively permitting dual employment with the investment dealer and an affiliated financial institution. According to IIROC, the sale of PPNs by such a dually employed individual could create client confusion as to which entity the client is dealing with (the financial institution or the IIROC dealer) and would result in the application of know your client and suitability protections dependent on the distribution channel.

Consequently, IIROC states that all sales of PPNs by an IIROC registered individual must be transacted solely in their capacity as an employee or agent of the dealer member. IIROC also expects that all dealers will have policies and procedures to give this expectation effect and to ensure adequate supervision and compliance oversight. For more information, see IIROC Notice 12-0384.

Structured finance regulatory resources available

If you're looking for quick access to standard industry documentation, like IIROC's securities loan agreements or SIFMA's standard forms, make sure you bookmark our blog's Resources page. Links to provincial securities transfer legislation and other resources are also provided.

Many industry associations also maintain resource libraries. For example, CASLA's resources page provides information on such topics as IIROC regulatory updates, Dodd Frank developments and potential effect on the Canadian market, and insights from CASLA's recent roundtable held to discuss the effects of the eurozone crisis and regulatory trends.

CSA Staff provide third update on PPNs

CSA staff (but for Quebec) published an update today to supplement their previous notices on Principal Protected Notes (the most recent being published in August 2008). The notice provides an update on the CSA's work with IIROC and the MFDA to ensure that suitability and know-your-client obligations apply to all dealings in PPNs by registered representatives. The notice also sets out the CSA's expectations that deposit-taking institutions will use registered dealers and individuals to distribute PPNs that do not fall within a limited class.

Of interest, the notice states that IIROC and the MFDA will soon be issuing notices to their members setting out the expectation that all dealings in PPNs by registered representatives be transacted by the representatives in their capacity as an employee or agent of their member firm.

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My new year's wish list

P. Jason Kroft

It has long been a Kroft family tradition to spend a relatively significant amount of time discussing and documenting new year's resolutions (and it is also a long-standing tradition of discarding or ignoring the resolutions not long after January 2nd of each year). Each year at around this time I'll sit down to carefully draft my plans for the year in an attempt to chart out my year's goals, plans and objectives. The plans are, by design, ambitious, considered and comprehensive. As my final blog submission for the year, I thought I would share with our readers some of my own goals for next year in the hopes that they may entertain and potentially inspire.

In 2011, I would like to own a Bugatti sports car like Jay-Z, have one million Facebook friends and appear during an episode of HBO's 'Entourage'. I'd like to finally obtain that work/life balance that I've read about and find that the Loonie is well above par during my spring break trip to Miami. I'm hoping for sunny and dry summer months, peace and prosperity for my clients, contacts and friends and interesting and challenging work assignments. 

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SEC Order Extending Temporary Conditional Exemption for NRSROs from Requirements of SEC Rule 17g-5.

P. Jason Kroft -
On May 19, 2010, the SEC conditionally exempted until December 2, 2010 national recognized statistical rating organizations (NRSROs) from certain requirements in Rule 17g-5(a)(3) of the Securities Exchange Act of 1934 (the Rule), which had a compliance date of June 2, 2010. Under that May 19th order, the SEC provided that an NRSRO is not required to comply with the Rule until December 2, 2010 with respect to credit ratings where: (1) the issuer of the structured finance product is a non-U.S. person and (2) the NRSRO has a reasonable basis to conclude that the structured finance product will be offered and sold, upon issuance, and that any arranger linked to the structured finance product will effect transactions of the structured finance product after issuance, only in transactions that occur outside the U.S. On November 23, 2010, the SEC extended the temporary conditional exemption exempting NRSROS from complying with the Rule with respect to such non-U.S. transactions until December 2, 2011. Whereas some commentators had been hoping for a permanent exemption from application of the Rule for non-U.S. transactions, Canadian structured finance participants (arrangers in particular) now have an extra year to contemplate the operational, technical and legal ramifications of the Rule when applied to new rated transactions.

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CSA issues guidance on environmental disclosure requirements

Cora Zeeman

As recently discussed on our securities blog, on October 27, the Canadian Securities Administrators (CSA) issued Staff Notice 51-333 – Environmental Reporting Guidance to provide guidance to reporting issuers on satisfying existing continuous disclosure requirements with respect to environmental concerns. Specifically, Staff Notice 51-333 is intended to assist issuers in determining what information about environmental matters needs to be disclosed by reporting issuers based on the requirements found in National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101) and National Instrument 52-110 Audit Committees (NI 52-110).

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IIROC releases PPN review findings

On August 31, the Investment Industry Regulatory Organization of Canada (IIROC) released findings and recommendations deriving from its 2009 compliance review of principal protected notes (PPNs). The review, based on a representative sample of dealers, considered, among other things, the adequacy of the selling firm's knowledge of the product and the firm's training for sales personnel and whether appropriate point of sale disclosure was provided to investors.

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SEC issues report regarding credit rating methodologies

Last week, the U.S. Securities and Exchange Commission (SEC) released a report cautioning nationally recognized credit rating agencies about "deceptive ratings conduct and the importance of sufficient internal controls over the policies, procedures, and methodologies the firms use to determine credit ratings." The report stems from an investigation into whether Moody's Investor Service, Inc. violated federal registration or antifraud provisions. The SEC also stated in the report that it will utilize new provisions in the Dodd-Frank Act "for enforcement actions alleging otherwise extraterritorial fraudulent misconduct that involves significant steps or foreseeable effects within the United States."

CSA publish proposed rule regarding credit rating organizations

The Canadian Securities Administrators today published for comment a proposed rule, policies and related consequential amendments that would impose regulatory oversight for designated credit rating agencies and organizations. Under the proposals, credit rating organizations wishing to become designated for the purposes of having their credit ratings eligible for use where credit ratings are referred to in securities legislation would have to apply and, once designated, maintain and ensure compliance with a code of conduct that complies with the provisions of the IOSCO Code of Conduct Fundamentals for Credit Ratings Agencies of the International Organization of Securities Commissions. The IOSCO Code addresses such issues as: (i) the quality and integrity of the rating process; (ii) credit rating agency independence and the avoidance of conflicts of interest; (iii) credit rating agency responsibilities to the investing public and issuers; and (iv) disclosure of the code of conduct and communication with market participants. Deviations, however, from the provisions of the IOSCO Code would be permitted under certain circumstances.

Comments are being accepted by the CSA until October 25, 2010.

New principal protected notes (PPNs) regulations published

Philip Henderson

On June 11, 2008, the federal government published the new Principal Protected Notes Regulations (the Regulations), which are intended to come into force on July 1, 2008.

The Regulations were introduced in response to the growing variety and complexity of principal protected notes currently being offered by financial institutions and build on the existing Index-linked Deposits Interest Disclosure Regulations, which will be repealed with the adoption of the new Regulations. The new requirements seek to ensure that investors in PPNs are adequately informed by improving the manner, content and timing of disclosure for these types of investments.

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Federal government releases draft regulations on principal protected notes

On November 24, 2007, Canada's federal Department of Finance announced proposed new regulations under the Bank Act, Cooperative Credit Associations Act and Trust and Loan Companies Act that will apply to Principal Protected Notes (PPNs). As reported in the Canada Gazette, the new regulations would define PPNs and specify "the content, manner and timing of disclosure that federally regulated deposit-taking institutions are required to provide at the point of sale for various sales channels" as well as other consumer-related requirements. The proposal is part of the federal government's "Advantage Canada" competitiveness program, designed to promote flexible outcomes-focussed approaches to regulation in response to rapid developments in global financial markets. Those wishing to comment have 30 days from the date of publication to respond.

The draft regulation is available online in the Canada Gazette, Part I for November 24, 2007, beginning on page 3279.