Notice and Proposed National Instrument: NI - 32-101 - Small Securityholder Selling and Purchase Arrangements

Request for Comment National Instrument

January 17, 1997

NOTICE OF PROPOSED NATIONAL INSTRUMENT

NATIONAL INSTRUMENT 32-101

SMALL SECURITYHOLDER SELLING AND PURCHASE ARRANGEMENTS

AND REVOCATION OF DEEMED RULES

Substance and Purpose of Proposed National Instrument

The proposed National Instrument provides an exemption to an issuer and its agents from adviser and dealer registrationrequirements in Canadian securities legislation for certain activities relating to arrangements that permit holders of small amounts ofsecurities of the issuer to sell those securities or to acquire additional securities. The proposed National Instrument is derived fromblanket orders and rulings issued by the Canadian securities regulatory authorities.

The proposed National Instrument is an initiative of the Canadian Securities Administrators (the "CSA"), and is expected to beadopted as a rule in each of British Columbia, Alberta and Ontario, as a Commission regulation in Saskatchewan, and as a policy inall the other jurisdictions represented by the CSA. The proposed National Instrument may be implemented by a blanket order orruling in certain jurisdictions.

The proposed National Instrument implements, in part, the recommendation of the CSA Task Force on Operational Efficienciesthat Canadian securities regulatory authorities increase the co-ordination of regulation, including standardization of requirements.

In Ontario, the proposed National Instrument replaces the Blanket Rulings of the Ontario Securities Commission, now deemedrules, In the Matter of a Policy of The Toronto Stock Exchange on Small Shareholder Selling and Purchase Arrangements(1987), 10 OSCB 1455 and In the Matter of a Policy of The Montreal Exchange on Small Shareholder Selling andPurchase Arrangements (1987), 10 OSCB 4938 (the "Deemed Rules").

Summary of Proposed National Instrument

The proposed National Instrument provides an exemption from the adviser and dealer registration requirements under Canadiansecurities legislation for trades by an issuer or its agent in furtherance of participation by existing holders of the issuer's securities insmall securityholder selling and purchase arrangements in accordance with the policy of certain stock exchanges.

The exemption is subject to the condition that neither the issuer nor its agent provide advice on participation by a securityholder inan arrangement, other than a description of the operation of the arrangement, procedures for participation in the arrangement, orboth. This condition is consistent with the manner in which small securityholder selling and purchase arrangements are currentlyconducted.In the proposed National Instrument, the Canadian securities regulatory authorities recognize the policies of The TorontoStock Exchange, The Montreal Exchange and The Alberta Stock Exchange and provides the Canadian securities regulatoryauthorities with the ability to designate other stock exchanges that have policies substantially similar to the policy of The TorontoStock Exchange.

The proposed National Instrument also expands current exemptions available in several jurisdictions by allowing any agent of thecompany to use the exemption, instead of limiting the exemption to agents that are transfer agents.

Authority for Proposed National Instrument

In those jurisdictions in which the National Instrument is to be adopted or made as a rule or regulation, the securities legislation ineach of those jurisdictions provides the securities regulatory authority with rule-making or regulation-making authority in respect ofthe subject matter of the proposed National Instrument.

In Ontario, paragraph 143(1)8 of the Securities Act (Ontario) authorizes the Ontario Securities Commission to make rulesproviding for exemptions from the registration requirements under the Ontario Act.

Alternatives Considered

The proposed National Instrument replaces blanket rulings and orders issued by the Canadian securities regulatory authorities. TheCSA did not consider any alternatives to implementing this exemption as a National Instrument.

Anticipated Costs and Benefits

The proposed National Instrument benefits small securityholders by facilitating arrangements that provide holders of less than aboard lot of securities with liquidity or an ability to accumulate a board lot, which might not otherwise be economical as a result ofminimum brokerage commissions. The proposed National Instrument also provides an incremental benefit to agents of a companythat are not transfer agents by providing an exemption for their activities related to small securityholder selling or purchasearrangements.

As the proposed National Instrument provides an exemption from requirements, there are no costs imposed by the proposedNational Instrument.

Comments

Interested parties are invited to make written submissions with respect to the proposed National Instrument. Submissions receivedby April 18, 1997 will be considered.

Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of the Ontario Commission, induplicate, as indicated below:

British Columbia Securities Commission
Alberta Securities Commission
Saskatchewan Securities Commission
The Manitoba Securities Commission
Ontario Securities Commission
ffice of the Administrator, New Brunswick
Registrar of Securities, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of Newfoundland
Securities Registry, Government of the Northwest Territories
Registrar of Securities, Government of the Yukon Territory

c/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:

Jacques Labelle, 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. Assecurities legislation in certain provinces requires that a summary of written comments received during the comment period bepublished, confidentiality of submissions cannot be maintained.

Questions may be referred to any of:

Ross McLennan
Director, Registration
British Columbia Securities Commission
(604) 660-4800

David Sheridan
Legal Counsel
Alberta Securities Commission
(403) 297-2630

Robert F. Kohl
Legal Counsel, Market Operations
Ontario Securities Commission
(416) 593-8233

Antoni Dandonneau
Conseiller juridique
Commission des valeurs mobilières du Québec
(514) 873-5326

Proposed National Instrument

The text of the proposed National Instrument follows, together with footnotes that are not part of the proposed National Instrumentbut have been included to provide background and explanation.

Revocation of Deemed Rules

DATED: January 17, 1997.

NATIONAL INSTRUMENT 32-101

SMALL SECURITYHOLDER SELLING AND PURCHASE ARRANGEMENTS⁽¹⁾

PART 1 DEFINITIONS AND INTERPRETATION⁽²⁾

1.1 Definitions - In this Instrument

"adviser registration requirement" means the requirement in securities legislation that prohibits a person or company from acting asan adviser unless the person or company is registered in the appropriate category of registration under securities legislation;⁽³⁾

"dealer registration requirement" means the requirement in securities legislation that prohibits a person or company from trading in asecurity unless the person or company is registered in the appropriate category of registration under securities legislation;⁽⁴⁾

"effective date" means the date this Instrument is adopted or made by the securities regulatory authority;⁽⁵⁾^, ⁽⁶⁾

"Exchange" means

(a) The Toronto Stock Exchange;

(b) The Montreal Exchange;

(d) an exchange that

(i) has a by-law, rule, regulation or policy that is substantially similar to the policy of The Toronto Stock Exchange; and

(ii) is designated by the securities regulatory authority for the purpose of this Instrument; and

"policy" means

(a) in the case of The Toronto Stock Exchange, The Toronto Stock Exchange Policy Statement on Small Shareholder Selling andPurchase Arrangements as it exists on the effective date and every successor to that policy that does not change the significantsubject matter of the policy;

(b) in the case of The Montreal Exchange, The Montreal Exchange Policy I-9 Small Shareholder Selling and PurchaseArrangements as it exists on the effective date and every successor to that policy that does not change the significant subject matterof the policy;

(c) in the case of The Alberta Stock Exchange, The Alberta Stock Exchange Circular No.15 Small Shareholder Selling andPurchase Arrangements as it exists on the effective date and every successor to that circular that does not change the significantsubject matter of the circular; and

(d) in the case of an Exchange referred to in paragraph (d) of the definition of Exchange, the by-law, rule, regulation or policy of theExchange on small shareholder selling and purchase arrangements and every successor to that by-law, rule, regulation or policy thatdoes not change the significant subject matter of the by-law, rule, regulation or policy.

1.2 Interpretation - For the purposes of paragraph 2.1(c), an exemption from, or variation of, the maximum number of securitiesthat a securityholder is permitted to hold under a policy in order to be eligible to participate in the arrangement provided for in thepolicy is not an exemption from, or variation of, the significant subject matter of the policy.

PART 2 EXEMPTION

2.1 Exemption - The adviser registration requirement and the dealer registration requirement do not apply to a trade⁽⁷⁾ by an issueror its agent⁽⁸⁾, in securities⁽⁹⁾ of the issuer that are listed and posted for trading on an Exchange, if

(a) the trade is an act in furtherance of participation by the holders of the securities in an arrangement that is in accordance with theExchange's policy;

(b) the issuer and its agent do not provide advice to a securityholder about the securityholder's participation in the arrangementreferred to in paragraph (a), other than a description of the arrangement's operation, procedures for participation in thearrangement, or both;⁽¹⁰⁾

(c) the trade is made in accordance with the policy of the Exchange, without resort to an exemption from, or variation of, thesignificant subject matter of the policy; and

(d) at the time of the trade after giving effect to a purchase under the arrangement, the market value of the maximum number ofsecurities that a securityholder is permitted to hold in order to be eligible to participate in the arrangement is not more than $25,000.

1. The proposed National Instrument is an initiative of the Canadian Securities Administrators (the "CSA") and is expected to beadopted as a rule in British Columbia, Alberta and Ontario, as a Commission regulation in Saskatchewan and as a policy in all otherjurisdictions represented by the CSA. This proposed Instrument is derived from Blanket Orders or Rulings by Canadian securitiesregulatory authorities.

2. A proposed national definition instrument has been published. It contains definitions of certain terms used in more than onenational instrument. The proposed national definition instrument also provides that terms used in a national instrument and defined inthe statute relating to securities of the applicable jurisdiction, the definition of which is not restricted to a specific portion of thestatute, will have the meaning given to them in the statute relating to securities of that jurisdiction. The proposed national definitioninstrument will also provide that a provision in a national instrument that specifically refers by name to jurisdiction, other than thelocal jurisdiction, shall not have any effect in the local jurisdiction, unless otherwise stated in the provision.

3. The term "securities legislation" is defined in the proposed national definition instrument to refer to the particular legislativeinstruments of a local jurisdiction described in the instrument and will generally include the statute, regulations and, in some cases,rules, rulings and orders governing trading in securities in the local jurisdiction.

4. This term may be moved to the national definition instrument at a later date as it is expected to be used in more than onenational instrument.

5. The term "effective date" is to be the date on which this Instrument comes into force in a particular jurisdiction and will vary byjurisdiction.

6. The term "securities regulatory authority" is defined in the proposed national definition instrument as meaning the securitiescommission or similar regulatory authority in the local jurisdiction. The term "local jurisdiction" is defined in the proposed nationaldefinition instrument as meaning, in a national instrument adopted or made by a Canadian securities regulatory authority, thejurisdiction in which the Canadian securities regulatory authority is situate.

7. Predecessor instruments exempted "solicitation" by a listed company and "all acts, negotiations or conduct" by a listed companyor its transfer agent. This distinction has been eliminated and the specific references to solicitation, negotiations and conduct havebeen removed as they were redundant.

8. Predecessor instruments exempted listed companies and their transfer agents. After discussions with staff of The Toronto StockExchange and the Montreal Exchange, it was decided that the exemption should not be limited to transfer agents but rather madeavailable to all agents of the company who are facilitating a small shareholder selling or purchase arrangement in accordance withthe policy of the relevant Exchange.

9. This proposed National Instrument refers to securities as opposed to shares to include arrangements which may involvesecurities other than shares.

10. This paragraph was suggested by the representatives of The Toronto Stock Exchange and reflects the current operation ofarrangements.