Notice and Proposed Amendment: OSC Rule - 32-503 - Registration and Prospectus Exemption for Trades by Financial Intermediaries in Mutual Fund Securities to Corporate Sponsored Plans

 

NOTICE OF PROPOSED AMENDMENT TO RULE 32-503

UNDER THE SECURITIES ACT

REGISTRATION AND PROSPECTUS EXEMPTION FOR TRADES

BY FINANCIAL INTERMEDIARIES IN MUTUAL FUND

SECURITIES TO CORPORATE SPONSORED PLANS

Substance and Purpose of Proposed Amendment

Rule 32-503 Registration and Prospectus Exemption for Trades by Financial Intermediaries in Mutual Fund Securities to CorporateSponsored Plans (the "Rule") was published in the Ontario Securities Commission Bulletin on December 20, 1996 ((1996), 19OSCB 6923). The Rule provides relief from the registration and prospectus requirements of the Act for certain trades up to andincluding March 31, 1998. The purpose of the proposed amendment is (i) to remove the "sunset" date of March 31, 1998 so thatthe registration and prospectus relief provided by the Rule will not be time limited and (ii) to add the prospectus and registrationexemption currently contained in paragraph 14(g) and paragraph 151(a) of the Regulation to the Rule.

Summary Proposed Amendment

The Rule came into effect on January 1, 1997 and carried forward the relief contained in a deemed rule of the Commission In theMatter of Certain Amendments to Regulation 1015 of the Revised Regulations of Ontario 1990 Made Under the SecuritiesAct (1994), 17 OSCB 5517. Section 1.1 of the Rule provides that up to and including March 31, 1998, section 25 of the Act doesnot apply to a trade by a financial intermediary in the security of a mutual fund sold to certain corporate sponsored plans or certain"pooled fund" mutual fund securities.

Section 1.2 of the Rule provides that up to and including March 31, 1998 the prospectus requirements of the Act do not apply to atrade in those mutual fund securities.

The Commission proposes to amend the Rule by deleting the "sunset" date of March 31, 1998 and deleting Part 2 of the Rulewhich contains the effective date of January 1, 1997. If the amendments are made, there will be no time limitation on the reliefprovided in the Rule. The Commission also proposes to replace paragraphs 1.1(a) and 1.2(a) with new paragraphs that carryforward the existing relief for trades by a financial intermediary in the security of a mutual fund sold to certain corporate sponsoredplans, but also add the relief currently found in paragraphs 14(g) and 151(a) of the Regulation for similar trades.

Authority for the Proposed Rule

The following sections of the Act provide the Commission with authority to make the proposed Rule. Paragraph 143(1)8 of the Actauthorizes the Commission to make rules that, among other things, provide for exemptions from the registration requirements of theAct. Paragraph 143(1)20 of the Act authorizes the Commission to make rules that, among other things, provide for exemptionsfrom the prospectus requirements of the Act.

Alternatives Considered

The Commission considered whether after March 31, 1998, persons trading in mutual fund securities that are the subject of theRule should be required to be registered to trade and whether the issuers of those securities should be required to prepare aprospectus for trades in those securities. The Commission determined that, at the present time, it would not be appropriate toimpose those requirements and that for the type of trades that are the subject matter of the Rule, providing registration andprospectus relief is appropriate. The Commission also determined that the relief found in paragraphs 14(g) and 151(a) of theRegulation should be carried forward but that that relief is more appropriately contained in Rule 32-503 than in the Regulation oranother rule as Rule 32-503 deals with the same subject matter as paragraphs 14(g) and 151(a) of the Regulation.

Unpublished Materials

In proposing this amendment, the Commission has not relied on any significant unpublished study, report or other material.

Anticipated Costs and Benefits

The Rule benefits persons trading in mutual fund securities that are the subject of the Rule in that those persons are not required tobe registered to trade in those securities and the issuers of those securities are not required to prepare a prospectus for thosetrades. The Rule imposes no costs on those persons. In considering whether to allow the relief provided by the Rule to lapse, theCommission was of the view that requiring persons trading in the securities that are the subject of the Rule to register and prepare aprospectus would result in added costs that would outweigh the benefit to the persons purchasing the securities. The Commissionalso considered that there was some risk that the additional costs might dissuade some employers from establishing or continuinggroup retirement plans for their employees.

Regulations to be Amended

The Commission proposes to amend subsection 206(1) of the Regulation by deleting the reference to the deemed rule and anotherdeemed rule replaced by Rule 32-502 Registration Exemption for Certain Trades by Financial Intermediaries so that the followingwords of subsection 206(1) will be deleted: "Except as otherwise provided in the Rules entitled "In the Matter of CertainAmendments to Regulation 1015 of the Revised Regulations of Ontario, 1990 made under the Securities Act" (1994), 17OSCB 5516 and "In the Matter of Certain Amendments to Regulation 1015 of the Revised Regulations of Ontario, 1990made under the Securities Act" (1994), 17 OSCB 5517,".

The Commission also proposes to revoke paragraph 14(g) and section 15 of the Regulation. Section 15 is not necessary given thewording of the proposed Rule.

Comments

Interested parties are invited to make written submissions with respect to the proposed amendment. Submissions received byFebruary 6, 1998 will be considered.

Submissions should be made in duplicate to:

Daniel P. Iggers, Secretary
Ontario Securities Commission
20 Queen Street West
Suite 800, Box 55
Toronto, Ontario
M5H 3S8

 

A diskette containing the submissions (in DOS or Windows format, preferably Word Perfect) should also be submitted. As theSecurities Act requires that a summary of written comments received during the comment period be published, confidentiality ofsubmissions received cannot be maintained.

Questions may be referred to:

Tanis MacLaren
Associate General Counsel
Ontario Securities Commission
(416) 593-8259

Proposed Amendment

The text of the proposed amendment follows.

DATED: November 7, 1997.

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AMENDMENT TO ONTARIO SECURITIES COMMISSION RULES

RULE 32-503

REGISTRATION AND PROSPECTUS EXEMPTION FOR TRADES

BY FINANCIAL INTERMEDIARIES IN MUTUAL FUND

SECURITIES TO CORPORATE SPONSORED PLANS

1.1 Amendments - Rule 32-503 Registration and Prospectus Exemption for Trades by Financial Intermediaries in Mutual FundSecurities to Corporate Sponsored Plans is amended by

(a) deleting the words in section 1.1 "Up to and including March 31, 1998,";

(b) deleting paragraph (a) of section 1.1 and replacing it with the following:

"(a) a security of a mutual fund, if the security is sold to a pension plan, deferred profit sharing plan, retirement savings plan or othersimilar capital accumulation plan maintained by the sponsor of the plan for its employees, and

(i) the employees deal only with the sponsor in respect of their participation in the plan and the purchase of the security by the plan,or

(ii) the decision to purchase the security is not made by or at the direction of the employee, or";

(c) deleting the words in section 1.2 "Up to and including March 31, 1998,";

(d) deleting paragraph (a) of section 1.2 and replacing it with the following:

"(a) a security of a mutual fund, if the security is sold to a pension plan, deferred profit sharing plan, retirement savings plan or othersimilar capital accumulation plan maintained by the sponsor of the plan for its employees, and

(i) the employees deal only with the sponsor in respect of their participation in the plan and the purchase of the security by the plan,or

(ii) the decision to purchase the security is not made by or at the direction of the employee, or"; and

(e) deleting Part 2 of the Rule.