Notice: NI - 54-102 - Supplemental Mailing List and Interim Financial Statement Exemption

 

NOTICE OF PROPOSED NATIONAL INSTRUMENT 54-102 -
SUPPLEMENTAL MAILING LIST AND INTERIMFINANCIAL STATEMENT EXEMPTION

 

Substance and Purpose of Proposed National Instrument

The proposed National Instrument is being published for comment as part of the reformulation of National Policy Statement No. 41 ("NP41"), and represents areformulation of the portions of NP41 that pertain to supplemental mailing lists. The reformulation of the remainder of NP41 is represented by proposedNational Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer, Companion Policy 54-101CP, Forms 54-101F1 through54-101F8 and, in Ontario, Implementing Rule 54-801, which are being published concurrently with the proposed National Instrument. The Canadian SecuritiesAdministrators ("CSA") are of the view that the subject matter of the proposed National Instrument is sufficiently distinct from National Instrument 54-101 towarrant separate national instruments.

The substance and purpose of the proposed National Instrument are to provide exemptive relief, from the requirement to send interim financial statements to itsregistered holders, for reporting issuers that send interim financial statements to the persons or companies on a supplemental mailing list established andmaintained under the proposed National Instrument.

The proposed National Instrument is an initiative of the CSA and is expected to be adopted or made as a rule in each of British Columbia, Alberta and Ontario,as a Commission regulation in Saskatchewan, and as a policy in all the other jurisdictions represented by the CSA.

Securities legislation of certain jurisdictions requires a reporting issuer to send interim financial statements to its registered holders. In jurisdictions where theproposed National Instrument will be adopted as a rule, exemptive relief for that jurisdiction from that requirement on the terms provided for in the proposedNational Instrument is provided by section 2.1 of the proposed National Instrument. In the jurisdictions that will adopt the Instrument as a policy, if necessary,other exempting instruments have been, or will be, implemented in order to provide that relief.

In Ontario, exemptive relief from the obligation to send interim financial statements is now provided by the Rule In the Matter of Certain Reporting Issuers[including National Policy Statement No. 41] (1997), 20 OSCB 1219, which is based on a blanket ruling of the Commission In the Matter of Certain ReportingIssuers (1988), 11 OSCB 1029. This Rule will expire on the earlier of December 31, 1998 or the date that a rule replacing that Rule comes into force. ThatRule will therefore expire when the proposed National Instrument comes into force.

Summary of Proposed National Instrument

The proposed National Instrument has two parts.

Part 1. Part 1 contains the definitions and interpretation of terms and phrases used in the proposed National Instrument.

Section 1.1 contains the definitions of terms used in the proposed National Instrument that are not defined in National Instrument 14- 101 Definitions. NationalInstrument 14-101 sets out definitions for commonly used terms used in more than one national instrument and should be read together with the proposedNational Instrument.

Section 1.1 includes the following definitions.

"interim financial statements" - includes all interim or quarterly financial statements or reports required under Canadian securities legislation to be send by thereporting issuer to registered holders;

"request for interim financial statements" - the request by which registered holders or beneficial owners of securities of a reporting issuer may elect to receive theinterim financial statements of an issuer;

"supplemental mailing list" - the list maintained by a reporting issuer containing the names of registered holders and beneficial owners of its securities that haverequested to receive interim financial statements of the reporting issuer.

Section 1.1 also provides that terms defined in National Instrument 54-101 and used in the proposed National Instrument have the respective meanings ascribedto them in National Instrument 54-101.

Section 1.2 provides that a reference in the proposed National Instrument to an intermediary or reporting issuer includes a nominee or agent of that person orcompany, and that a person or company that uses an agent remains fully responsible for its compliance with the Instrument. In creating this section, the CSArecognize that intermediaries and reporting issuers retain third party service providers to satisfy many of the requirements under NP41, and will continue to do sounder the proposed National Instrument.

Part 2. Part 2 has 6 sections.

Section 2.1 provides an exemption to a reporting issuer from the requirement of security legislation to deliver interim financial statements to its securityholders, ifthe reporting issuer establishes and maintains a supplemental mailing list, and sends its interim financial statements to the persons or companies on that list inaccordance with the proposed National Instrument. The reporting issuer is also required, in order to rely on the exemption, to file the interim financialstatements with securities regulatory authorities, and concurrently file the interim financial statements with the stock exchanges upon which securities of thereporting issuer are listed and issue a press release to the financial press with the highlights of the information contained in the interim financial statement.

The effect of the exemption is that reporting issuers using the regime contemplated by the proposed National Instrument will not have to send interim financialstatements to their registered holders, as otherwise required by securities legislation, unless the registered holders have indicated under the proposed NationalInstrument that they wish to receive those statements.

The CSA note that the use of a supplemental mailing list is optional for reporting issuers. Reporting issuers are free to elect not to establish a supplementalmailing list, in which case, unless otherwise exempt, they would be required to comply with requirements of securities legislation to deliver their interim financialstatements to registered holders.

Section 2.2 outlines the requirements concerning the establishment of a supplemental mailing list, whereby a reporting issuer is required to send the form ofrequest with its proxy-related materials or, if the issuer does not have an annual meeting, with its audited annual financial statements or annual report, to itssecurityholders asking if they wish to receive the interim financial statements. This request would be delivered under the mechanisms governed by NationalInstrument 54-101, and would therefore be received by beneficial owners of the securities of the reporting issuer.

Section 2.3 provides that the exemption provided in section 2.2 is an annual exemption only, and requires the reporting issuer to send a form of request to itssecurityholders on an annual basis.

Section 2.4 requires a supplemental mailing list established under section 2.2 to contain names and addresses of the registered holders and beneficial owners ofthe securities of a reporting issuer that have requested interim financial statements.

Section 2.5 requires a reporting issuer to send its interim financial statements to the persons or companies on the supplemental mailing list in accordance with thetiming requirements of securities legislation for sending such materials to registered holders.

Section 2.6 requires a reporting issuer to make all necessary arrangements to permit the securityholder to respond to the request for interim financial statementsat no cost to the securityholder.

Alternatives Considered

No significant alternatives were considered. The exemption in the proposed National Instrument is substantially similar to the arrangement currently in placeunder NP41 and its related blanket rulings, rules and other exemptions.

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 in each of those jurisdictionsprovides the securities regulatory authority with rule-making or regulation-making authority in respect of the subject matter of the proposed National Instrument.

In Ontario, the following sections of the Securities Act (Ontario) (the "Ontario Act") provide the Ontario Securities Commission (the "Ontario Commission")with authority to make the proposed National Instrument. Paragraph 143(1)23 of the Ontario Act authorizes the Ontario Commission to make rules exemptingreporting issuers from any requirement of Part XVII (Continuous Disclosure) under circumstances that the Commission considers justify the exemption.Paragraph 143(1)27 of the Ontario Act authorizes the Ontario Commission to make rules providing for the application of Part XVIII (Continuous Disclosure) ofthe Ontario Act in respect of registered holders or beneficial owners of voting securities or equity securities of reporting issuers or other persons or companieson behalf of whom the securities are held. Paragraph 143(1)39 of the Ontario Act authorizes the Ontario Commission to make rules requiring or respecting themedia, format, preparation, form, content, execution, certification, dissemination and other use, filing and review of all documents required under or governed bythe Ontario Act or the regulations or the rules made thereunder, and all documents determined by the regulations or the rules made under the Ontario Act to beancillary to the documents, including interim financial statements.

Regulations to be Revoked or Amended - Ontario

The implementation of the proposed National Instrument and Companion Policy will not require the amendment or revocation of any Regulation.

Related Instruments

The proposed National Instrument is related to proposed National Instrument 54-101 Communications with Beneficial Owners of Securities of a ReportingIssuer and to Part XVIII of the Ontario Act.

Unpublished Materials

In proposing the National Instrument, the CSA have not relied on any significant unpublished study, report, decision or other written materials.

Anticipated Costs and Benefits

The exemption provided in the proposed National Instrument will maintain the cost savings for reporting issuers associated with not having to send interimfinancial statements to securityholders who do not wish to receive such material. Reporting issuers will continue to incur a small additional cost for includingwith their annual proxy-related material the form of request for interim financial statements, but based on experience to date under NP41, the CSA believe thatthe benefits of the proposed National Instrument justify its costs.

Comments

Interested parties are invited to make written submissions with respect to the proposed National Instrument. Submissions received by May 29, 1998 will beconsidered.

Submissions should be sent to all of the Canadian securities regulatory authorities listed below in care of the Ontario Securities Commission, in duplicate, asindicated below:

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

c/o Daniel P. Iggers, SecretaryOntario Securities Commission
20 Queen Street WestSuite 800, Box 55
Toronto, Ontario M5H 3S8

Submissions should also be addressed to the Commission des valeurs mobilières du Québec as follows:
Claude St Pierre, Secretary
Commission des valeurs mobilières du Québec
800 Victoria SquareStock Exchange Tower
P.O. Box 246, 17th FloorMontréal, Québec H4Z 1G3

A diskette containing the submissions (in DOS or Windows format, preferablWordPerfect) should also be submitted. As securities legislation in certain provinces requires that a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained.Questions may be referred to any of:

Diane Joly
Commission des valeurs mobilières du Québec
(514) 873-5326

Glenda A. CampbellAlberta Securities Commission
(403) 297-6454

Robert Hudson
British ColumbiaSecurities Commission
(604) 899-6691
or 1-800-373-6393 (in B.C.)

Robert F. Kohl
Ontario Securities Commission
(416) 593-8233

Text of Proposed National Instrument
The text of the proposed National Instrument follows, together withfootnotes that are not part of the National Instrument, but have been included to provide background and explanation.
DATED: February 27, 1998.