Mutual Reliance Review System for ExemptiveRelief Applications -offering of corporate strip bonds; exemptiongranted from the eligibility requirements of National Instrument44-102 Shelf Distributions and National Instrument 44-101Short Form Prospectus Distributions to permit the filingof a shelf prospectus and prospectus supplements (the "Prospectus")qualifying for distribution strip residuals, strip coupons andstrip packages (the "Strip Securities") to be derivedfrom debt obligations ("Underlying Obligations") ofCanadian corporations and trusts; exemption also granted fromthe requirements that the Prospectus contain a certificate ofthe issuer and that the Prospectus incorporate by referencedocuments of the Underlying Issuer.
The exemptions are subject to the followingconditions (i) all of the Underlying Obligations from whichthe Strip Securities are derived were qualified under prospectusesfiled in British Columbia, Alberta, Ontario, Quebec, at leastsix months have passed from the sale of the Underlying Obligationsand the distribution of the Underlying Obligations is complete;(ii) when the Strip Securities are sold the Underlying Issueris eligible to file a short form prospectus; (iii) a base shelfprospectus for the Strip Securities is not effective for morethan 25 months; (iv) the Prospectus complies with all the requirementsof NI 44-101 and NI 44-102 except those from which an exemptionis granted by the decision document or granted by the regulatorsas evidenced by the receipt for the Prospectus; (v) the Filerissues a press release and files a material change report foreach material change which affects the Strip Securities butnot an Underlying Issuer and any change in CDS's Debt ClearingProcedures which may have a significant effect on a holder ofStrip Securities; and (vi) the Filer files the Prospectus ,therequired material changes reports and all other documents relatedthereto on SEDAR under a SEDAR profile for the Strip Securitiesand pays all SEDAR filing fees.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.,subsection 58(1).
Applicable National Instruments
National Instrument 44-101 Short Form ProspectusDistributions.
National Instrument 44- 102 Shelf Distributions.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA,
ONTARIO, QUÉBEC, NEWBRUNSWICK, NOVA SCOTIA,
PRINCE EDWARD ISLAND, NEWFOUNDLANDAND LABRADOR,
YUKON TERRITORY, NORTHWESTTERRITORIES AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
RBC DOMINION SECURITIES INC.
IN THE MATTER OF
THE COUPONS AND RESIDUALS("CARS"TM) AND
PAR ADJUSTED RATE STRIPSTM("PARS"TM) PROGRAMME
OF RBC DOMINION SECURITIESINC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Québec, New Brunswick, Prince Edward Island, Nova Scotia,Newfoundland and Labrador, Yukon Territory, Northwest Territoriesand Nunavut (collectively, the "Jurisdictions") hasreceived an application from RBC Dominion Securities Inc. (the"Filer") for a decision pursuant to the securitieslegislation of the Jurisdictions (the "Legislation")that the following requirements shall not apply, in respectof any Underlying Issuer (as defined below) whose UnderlyingObligations (as defined below) are purchased by the Filer onthe secondary market, and separate components of interest, principalor combined principal and interest components derived therefromsold under the CARS and PARS Programme (as defined below):
(a) Section 2.1 of National Instrument 44-102Shelf Distributions ("NI 44-102") and section2.1 of National Instrument 44-101 Short Form ProspectusDistributions ("NI 44-101") so that a preliminaryshort form prospectus which is a preliminary base shelfprospectus and a short form prospectus which is a base shelfprospectus together with the appropriate prospectus supplements(the "Prospectus") can be filed to offer the StripSecurities (as defined below) in the Jurisdictions;
(b) the requirements of the Legislationthat the Prospectus contain a certificate of the issuer;and
(c) the requirements of the Legislationthat the Prospectus incorporate by reference documents ofan Underlying Issuer.
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Quebec Commission Notice 14-101;
AND WHEREAS the Filer has representedto the Decision Makers that:
1. The Filer proposes to establish a new stripbond product programme (the "CARS and PARS Programme")to be offered by shelf prospectus;
2. The CARS and PARS Programme would be establishedby purchasing, on the secondary market, publicly-issued debtobligations of Canadian corporate and/or or trust issuers("Underlying Issuers"), which obligations will carryan "approved rating" (as such term is defined inNI 44-101 (the "Underlying Obligations"), at thetime of the closing of the discrete offering in respect ofthe related strip securities (the "Offering Date"),and deriving separate components therefrom, being:
(a) separate components of principal ("StripResiduals") and interest ("Strip Coupons"),and/or
(b) packages of strip securities ("StripPackages"), including packages of:
(i) Strip Coupons; and
(ii) Par Adjusted Rate Strips("PARS").PARS will comprise an entitlement to receive the principalamount of, and a portion, equal to a market rate (at thetime of issuance of the PARS), of the interest payableunder the Underlying Obligations,
The Strip Residuals, Strip Coupons and StripPackages (including packages of Strip Coupons and PARS) areeach referred to as "Strip Securities").
3. The relevant Underlying Issuer would, tothe best of the Filer's knowledge, be eligible to file a shortform prospectus under NI 44-101 at the Offering Date;
4. The Underlying Obligations will have beendistributed under a prospectus for which a receipt was grantedby the regulator in British Columbia, Alberta, Ontario, andQuebec;
5. A single short form base shelf prospectuswould be established for the CARS and PARS Programme as awhole, with a separate series of Strip Securities being offeredunder a discrete prospectus supplement for each distinct seriesor class of Underlying Obligations;
6. It is expected that the Strip Securitieswill be predominantly sold to retail customers;
7. The CARS and PARS Programme is designedto provide a mechanism for retail investors to participatein the secondary market for corporate debt. The PARS componentof the CARS and PARS Programme is designed to make availablea strip package that is priced at or about par by way of includingan interest component reflective of a current market rateplus return of principal at maturity;
8. It is expected that the Filer would periodicallyidentify, as demand indicated, series of outstanding debtobligations of Canadian corporations or trusts and would purchaseand "repackage" individual series of these for saleunder the CARS and PARS Programme as discrete series of StripSecurities. In purchasing the Underlying Obligations and creatingthe Strip Securities, the Filer will not enter into any agreementor other arrangements with the Underlying Issuers;
9. The Prospectus will refer purchasers ofthe Strip Securities to the System for Electronic DocumentAnalysis and Retrieval ("SEDAR") website maintainedby The Canadian Depository for Securities Limited ("CDS")(currently located at www.sedar.com) where they can obtainthe continuous disclosure materials of the Underlying Issuer;
10. The Filer may, from time to time, formand manage a selling group consisting of other registeredsecurities dealers to solicit purchases of and sell the StripSecurities to the public;
11. The Strip Securities will be sold in series,each such series relating to separate Underlying Obligationsof an Underlying Issuer. The base shelf prospectus for usewith the CARS and PARS Programme will describe the CARS andPARS Programme in detail. The shelf prospectus supplementfor any series of Strip Securities that are offered will describethe specific terms of the Strip Securities;
12. Each series of Strip Securities will bederived from one or more Underlying Obligations of a singleclass or series of an Underlying Issuer. The Filer intendsto separate the Underlying Obligations for each series intoseparate principal and interest components, or strip bonds.These components will, in connection with each series, bere-packaged if and as necessary to create the Strip Securities;
13. The Strip Residuals of a particular serieswill consist of the entitlement to receive payments of a portionof the principal amounts payable under the Underlying Obligations,if, as and when paid by the Underlying Issuer on the UnderlyingObligations, in accordance with their respective terms;
14. The Strip Coupons of a particular serieswill consist of the entitlement to receive a payment of aportion of the interest payable under the Underlying Obligations,if, as and when paid by the Underlying Issuer on the UnderlyingObligations, in accordance with their respective terms;
15. The Strip Packages will consist of theentitlement to receive (a) in the case of PARS, both paymentsof a portion of the principal amounts payable and periodicpayments of a portion equal to a market rate (at the timeof issuance of the PARS) of the interest payable under theUnderlying Obligations, and/or (b) in the case of packagesconsisting of Strip Coupons , periodic payments of portionsof the interest payable, or the principal amounts payable,under the Underlying Obligations, in each case, if, as andwhen paid by the Underlying Issuer on the Underlying Obligations,in accordance with their respective terms;
16. Holders of a series of Strip Securitieswill be entitled to payments from cash flows from the relatedUnderlying Obligations if, as and when made by the respectiveUnderlying Issuer. The Strip Securities of one series willnot be entitled to receive any payments from the cash flowsof Underlying Obligations related to any other series. Asthe Underlying Issuers will be the sole obligors under therespective Underlying Obligations, holders of Strip Securitieswill be entirely dependent upon the Underlying Issuers' abilityto perform their respective obligations under their respectiveUnderlying Obligations;
17. The Strip Securities will be sold at pricesdetermined by the Filer from time to time and, as such, thesemay vary as between purchasers of the same series and duringthe offering period of Strip Securities of the same series.In quoting a price for the Strip Securities, the Filer willadvise the purchaser of the annual yield to maturity thereofbased on such price;
18. The Underlying Issuers will not receiveany proceeds, and the Filer will not be entitled to be paidany fee or commission by the Underlying Issuers, in respectof the sale by the Filer of the Strip Securities. The Filer'soverall compensation will be increased or decreased by theamount by which the aggregate price paid for a series of theStrip Securities by purchasers exceeds or is less than theaggregate price paid by the Filer for the related UnderlyingObligations;
19. The maturity dates of any particular seriesof Strip Coupons and the interest component of Strip Packageswill be coincident with the interest payment dates for theUnderlying Obligations, with terms of up to 30 years or longer.The maturity date of a particular series of Strip Residualsand the principal component of Strip Packages, if any, willbe the maturity date of the Underlying Obligations for theseries;
20. The Strip Securities will be issuablein Canadian and U.S. dollars and in such minimum denomination(s)and with such maturities as may be described in the applicableshelf prospectus supplement;
21. The Underlying Issuers will be Canadiancorporations or trusts. The Underlying Obligations are securitiesof the Underlying Issuers. The Strip Securities will be derivedwithout regard, except as to ratings and eligibility to filea short form prospectus under NI 44-101, for the value, price,performance, volatility, investment merit or creditworthinessof the Underlying Issuers historically or prospectively;
22. To be eligible for inclusion in the CARSand PARS Programme, the Underlying Obligations must have beenqualified for distribution under a prospectus for which areceipt was issued by the regulators in British Columbia,Alberta, Ontario and Quebec, at least six months must havepassed from the date of closing of the original issue of therelevant class or series of Underlying Obligations and thedistribution of the Underlying Obligations must be complete;
23. The Filer will cause all Underlying Obligationsfrom which the Strip Securities will be derived and whichare not already in the CDS system to be delivered to CDS andregistered in the name of CDS. The Underlying Obligationsfrom which the Strip Securities will be derived will, exceptin very limited circumstances, be held by CDS until theirmaturity and will not otherwise be released or removed fromthe segregated account used by CDS to maintain the UnderlyingObligations. A separate security identification number orISIN will be assigned by CDS to each series of Strip Securities;
24. Pursuant to the operating rules and proceduresof its Debt Clearing Service, or any successor operating rulesand procedures, CDS will maintain book based records of ownershipfor the Strip Securities, entering in such records only inthe names of participants ("Participants") in thedepository system of CDS. No purchaser of Strip Securitieswill be entitled to any certificate or other instrument fromthe Underlying Issuer, the Filer or CDS evidencing the StripSecurities or the ownership thereof, and no purchaser of StripSecurities will be shown on the records maintained by CDSexcept through the book entry account of a Participant. Uponthe purchase of Strip Securities, the purchaser will receiveonly the customary confirmation slip that will be sent tosuch purchaser by the Filer or other Participant;
25. Transfers of beneficial ownership in StripSecurities will be effected through records maintained forStrip Securities by CDS or its nominee (with respect to interestsof Participants) and on the records of Participants (withrespect to interests of persons other than Participants).Beneficial holders who are not Participants, but who desireto purchase, sell or otherwise transfer beneficial ownershipof, or any other interest in, such Strip Securities of a series,would do so only through Participants;
26. Payments in respect of a principal component(if any), interest component(s) (if any), or other amounts(if any) owing under a series of Strip Securities will bemade from payments received by CDS in respect of the relatedUnderlying Obligations from the relevant Underlying Issuer.Amounts payable on the maturity of the Strip Securities willbe payable by the Underlying Issuer to CDS as the registeredholder of the Underlying Obligations. Following receipt thereof,CDS will pay to each of its Participants shown on its recordsas holding matured Strip Securities the amount to which suchParticipant is entitled. The Filer understands that each Participantwho holds such Strip Securities on behalf of a purchaser thereofwill pay or otherwise account to such purchaser for the amountsreceived by it in accordance with the instructions of thepurchaser to such Participant. Holders of a series of StripSecurities will not have any entitlement to receive paymentsunder any Underlying Obligations acquired in connection withthe issue of any other series of Strip Securities;
27. As the registered holder of the UnderlyingSecurities, CDS will receive any voting rights in respectof the Underlying Obligations for the Strip Securities. CDSwill allocate these rights to the holders of the Strip Securitiesin accordance with the operating rules and procedures of itsDebt Clearing Service, or any successor operating rules andprocedures, in effect at the time. These procedures currentlyprovide for the distribution of the voting rights based onthe "proportionate economic interest", determinedas described in the base shelf prospectus for use with theProgramme CARS and PARS. Such voting rights will be vestedon a series by series basis and the holders of one seriesof Strip Securities will not have any entitlements via-à-visvoting rights in respect of another series. In order for aholder of Strip Securities to have a legal right to attenda meeting of holders of Underlying Obligations, or to votein person, such holder of Strip Securities must be appointedas proxyholder for the purposes of the meeting by the CDSParticipant through whom he or she holds Strip Securities;
28. In the event that an Underlying Issuerrepays a callable Underlying Obligation prior to maturityin accordance with its terms, CDS will allocate the amountof proceeds it receives as the registered holder of the UnderlyingObligations to the holders of the Strip Securities in accordancewith the operating rules and procedures of its Debt ClearingService, or any successor operating rules and procedures,in effect at the time. These procedures currently providefor the distribution of proceeds on the repayment of a callableUnderlying Obligation based on the "proportionate economicinterest"; and
29. Any other entitlements received by CDSwith respect to the Underlying Obligations upon the occurrenceof an event other than in respect of maturity, including entitlementson the insolvency or winding-up of an Underlying Issuer, thenon-payment of interest or principal when due, or a defaultof the Underlying Issuer under any trust indenture or otheragreement governing the Underlying Obligations, will be processedby CDS in accordance with the operating rules and proceduresof its Debt Clearing Service, or any successor operating rulesand procedures, in effect at the time. These procedures alsocurrently provide for CDS to distribute the resulting cashand/or securities to the holders of the Strip Securities basedon "proportionate economic interest". In addition,if the Underlying Issuer offers an option to CDS as the registeredholder of the Underlying Obligations in connection with theevent, the Filer understands that CDS will attempt to offerthe same option to the holders of the Strip Securities, wherefeasible.
AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers underthe Legislation is that in respect of the CARS and PARS Programme:
1. An exemption is granted from section 2.1of NI 44-102 and section 2.1 of NI 44-101 to permit a preliminaryshort form prospectus which is a preliminary base shelf prospectusand a short form prospectus which is a base shelf prospectusfor the Strip Securities to be filed and receipts issued therefor;
2. The requirements in the Legislation thatthe Prospectus contain a certificate of the issuer shall notapply ; and
3. The requirement in the Legislation thatthe Prospectus incorporate by reference any document of anUnderlying Issuer shall not apply ;
A. The Underlying Obligations were qualifiedfor distribution under a prospectus for which a receiptwas issued by the regulators in British Columbia, Alberta,Ontario and Quebec, at least six months have passed fromthe date of closing of the original issue of the relevantclass or series of Underlying Obligations and the distributionof the Underlying Obligations is complete;
B. To the best of the Filer's knowledgethe relevant Underlying Issuer is eligible to file a shortform prospectus under NI 44-101 at the Offering Date;
C. A receipt issued for a base shelf prospectusin reliance on this Decision Document is not effective afterthe date 25 months from the date of its issue;
D. The offering and sale of the Strip Securitiescomplies with all the requirements of NI 44-102 and NI 44-101as varied by NI 44-102, other than those from which an exemptionis granted by this Decision Document or from which an exemptionis granted in accordance with Part 11 of NI 44-102 by thesecurities regulatory authority or regulator in each ofthe Jurisdictions as evidenced by a receipt for the Prospectus;
E. The Filer issues a press release andfiles a material change report in respect of:
(i) a material change to the CARS andPARS Programme which affects any of the Strip Securitiesother than a change which is a material change to an UnderlyingIssuer; and
(ii) a change in the operating rules andprocedures of Debt Clearing Service of CDS which may havea significant effect on a holder of Strip Securities.
F. The Filer files the Prospectus, the materialchange reports referred to above, and all documents relatedthereto on SEDAR under a SEDAR profile for the Strip Securitiesand pays all filing fees applicable to such filings.
October 31, 2002.