Securities Law & Instruments

Headnote

 

Section 6.1 of NI 62-104 – Issuer bid – relief from the requirements applicable to issuer bids in Part 2 of NI 62-104 – issuer proposes to purchase, pursuant to a repurchase program and at a discounted purchase price, up to a specified number of its common shares under its normal course issuer bid from a third party – the third party will abide by the requirements governing normal course issuer bids as though it was the issuer, subject to certain modifications, including that the third party will not make any purchases under the program pursuant to a pre-arranged trade – common shares delivered to the issuer for cancellation will be common shares from the third party's existing inventory – due to the discounted purchase price, the common shares cannot be acquired through the TSX trading system – but for the fact that the common shares cannot be acquired through the TSX trading system, the Issuer could otherwise acquire such shares in accordance with TSX rules and in reliance upon the issuer bid exemption available under section 4.8 of NI 62-104 – the third party will purchase common shares under the program on the same basis as if the issuer had conducted the bid in reliance on the normal course issuer bid exemptions set out in securities legislation – no adverse economic impact on, or prejudice to the issuer or its security holders – acquisition of securities exempt from the requirements applicable to issuer bids in Part 2 of NI 62-104, subject to conditions, including that the number of common shares transferred by the third party from its existing inventory to the issuer for purchase under the program be equivalent to the number of common shares that the third party has purchased, or had purchased on its behalf, on Canadian markets.

 

Statutes Cited

 

National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.

 

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

 

AND

 

IN THE MATTER OF

NATIONAL BANK OF CANADA AND

THE TORONTO-DOMINION BANK

 

ORDER

(Section 6.1 of National Instrument 62-104)

 

                UPON the application (the “Application”) of National Bank of Canada (the “Issuer”) and The Toronto-Dominion Bank (“TD”, and together with the Issuer, the “Filers”) to the Ontario Securities Commission (the “Commission”) for an order pursuant to section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids (“NI 62-104”) exempting the Issuer from the requirements applicable to issuer bids in Part 2 of NI 62-104 (the “Issuer Bid Requirements”) in respect of the proposed purchases by the Issuer of up to 500,000 (the “Program Maximum”) of its common shares (the “Common Shares”) from TD pursuant to a share repurchase program (the “Program”);

 

                AND UPON considering the Application and the recommendation of staff of the Commission;

 

                AND UPON the Issuer having represented to the Commission the matters set out in paragraphs 1, 2, 3, 4, 10 to 19, inclusive, 21 to 28, inclusive, 32, 34, 36, 37, 38, 40 and 41;

 

                AND UPON TD and TD Securities Inc. (“TDSI”, and together with TD, the “TD Entities”) having represented to the Commission the matters set out in paragraphs 5, 6, 7, 8, 9, 19 to 22, inclusive, 27, 29 to 33, inclusive, 35, 39, 41 and 42 as they relate to the TD Entities;

 

1.             The Issuer is a Schedule I bank governed by the Bank Act (Canada).

 

2.             The registered and head office of the Issuer is located at 600 de La Gauchetière Street West, 4th Floor, Montréal, Quebec, H3B 4L2.

 

3.             The Issuer is a reporting issuer in each of the provinces and territories of Canada (the “Jurisdictions”) and the Common Shares are listed for trading on the Toronto Stock Exchange (the “TSX”) under the symbol “NA”. The Issuer is not in default of any requirement of the securities legislation of the Jurisdictions.

 

4.             The authorized common share capital of the Issuer consists of an unlimited number of Common Shares, of which 341,636,027 were issued and outstanding as of June 30, 2017.

 

5.             TD is a Schedule I bank governed by the Bank Act (Canada). The head office of TD is located in the Province of Ontario.

 

6.             TDSI is registered as an investment dealer under the securities legislation of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, Yukon, the Northwest Territories and Nunavut. It is also registered as a futures commission merchant under the Commodity Futures Act (Ontario), as a derivatives dealer under the Derivatives Act (Québec), and as a dealer (futures commission merchant) under The Commodity Futures Act (Manitoba). TDSI is a member of the Investment Industry Regulatory Organization of Canada (“IIROC”) and the Canadian Investor Protection Fund, a participating organization or member of the TSX, TSX Venture Exchange and Canadian Securities Exchange, and an approved participant of the Bourse de Montréal. The head office of TDSI is located in Toronto, Ontario.

 

7.             TD does not own, directly or indirectly, more than 5% of the issued and outstanding Common Shares.

 

8.             TD is the beneficial owner of at least 500,000 Common Shares, none of which were acquired by, or on behalf of, TD in anticipation or contemplation of resale to the Issuer (such Common Shares over which TD has beneficial ownership, the “Inventory Shares”). All of the Inventory Shares are held by TD in the Province of Ontario, and all purchases of Inventory Shares by the Issuer from TD will be executed and settled in the Province of Ontario. No Common Shares were purchased by, or on behalf of, TD on or after June 7, 2017, being the date that was 30 days prior to the date of the Application, in anticipation or contemplation of a sale of Common Shares by TD to the Issuer.

 

9.             TD is at arm’s length to the Issuer and is not an “insider” of the Issuer, an “associate” of an “insider” of the Issuer, or an “associate” or “affiliate” of the Issuer, as such terms are defined in the Securities Act (Ontario) (the “Act”). TD is an “accredited investor” within the meaning of National Instrument 45-106 Prospectus Exemptions.

 

10.          Pursuant to a Notice of Intention to Make a Normal Course Issuer Bid (the “Notice”) which was accepted by the TSX effective June 1, 2017, the Issuer is permitted to make a normal course issuer bid (the “Normal Course Issuer Bid”) to purchase for cancellation, during the 12-month period beginning on June 5, 2017 and ending on June 4, 2018, up to 6,000,000 Common Shares, representing approximately 1.76% of the issued and outstanding Common Shares as of the date specified in the Notice. The Notice specifies that purchases under the Normal Course Issuer Bid will be conducted through the facilities of the TSX or any other exchange or alternative trading system in Canada, or by such other means as may be permitted by the TSX, in accordance with sections 628 to 629.3 of Part VI of the TSX Company Manual (the “TSX Rules”), by a securities regulatory authority, or under applicable securities laws and regulations, including under automatic trading plans and by private agreements or share repurchase programs under issuer bid exemption orders issued by securities regulatory authorities.

 

11.          The Normal Course Issuer Bid is being conducted in reliance upon the exemption from the Issuer Bid Requirements set out in subsection 4.8(2) of NI 62-104 (the “Designated Exchange Exemption”).

 

12.          The Normal Course Issuer Bid is also being conducted in the normal course on other permitted published markets in Canada (the “Canadian Other Published Markets”) in reliance upon the exemption from the Issuer Bid Requirements set out in subsection 4.8(3) of NI 62-104 (the “Other Published Markets Exemption”, and together with the Designated Exchange Exemption, the “Exemptions”).

 

13.          Pursuant to the TSX Rules, the Issuer has appointed National Bank Financial Inc. as its designated broker in respect of the Normal Course Issuer Bid (the “Responsible Broker”).

 

14.          The Issuer may, from time to time, appoint a non-independent purchasing agent (a “Plan Trustee”) to purchase Common Shares on the open market to fulfill requirements for the delivery of Common Shares under the Issuer’s security-based compensation plans (the “Plan Trustee Purchases”). A Plan Trustee has not been appointed by the Issuer, no Plan Trustee will be appointed by the Issuer during the Program Term (as defined below) and no Plan Trustee Purchases will be required or made during the Program Term.

 

15.          The Notice states that the Issuer may implement an automatic repurchase plan (an “ARP”) to permit the Issuer to make purchases under the Normal Course Issuer Bid at such times when the Issuer would not be permitted to trade in its securities, including regularly scheduled quarterly blackout periods and other internal blackout periods (each such time, a “Blackout Period”). No ARP has been implemented at this time and no ARP will be implemented or operative during the Program Term.

 

16.          The maximum number of Common Shares that the Issuer is permitted to repurchase under the Normal Course Issuer Bid will be reduced by the number of Plan Trustee Purchases and the number of Common Shares purchased under an ARP, if any.

 

17.          To the best of the Issuer’s knowledge, the “public float” (calculated in accordance with the TSX Rules) for the Common Shares as at June 30, 2017 consisted of 340,950,289 Common Shares. The Common Shares are “highly-liquid securities” as that term is defined in section 1.1 of OSC Rule 48-501 Trading during Distributions, Formal Bids and Share Exchange Transactions (“OSC Rule 48-501”) and section 1.1 of the Universal Market Integrity Rules (“UMIR”).

 

18.          As at July 14, 2017, the Issuer has not purchased any Common Shares pursuant to the Normal Course Issuer Bid.

 

19.          The Filers wish to participate in the Program during, and as part of, the Normal Course Issuer Bid to enable the Issuer to purchase from TD, and for TD to sell to the Issuer, that number of Common Shares equal to the Program Maximum.

 

20.          Pursuant to the terms of the Program Agreement (as defined below), TDSI has been retained by TD to acquire Common Shares through the facilities of the TSX and on Canadian Other Published Markets (collectively with the TSX, the “Canadian Markets”) under the Program. No Common Shares will be acquired under the Program on a market that is not a Canadian Market.

 

21.          The Program will be governed by, and conducted in accordance with, the terms and conditions of a Share Repurchase Program Agreement (the “Program Agreement”) that will be entered into among the Filers and TDSI prior to the commencement of the Program and a copy of which will be delivered by the Filers to the Commission promptly thereafter.

 

22.          The Program will begin on or after July 24, 2017 and will terminate on the earlier of October 31, 2017 and the date on which the Issuer will have purchased the Program Maximum under the Program (the “Program Term”). Neither the Issuer nor any of the TD Entities may unilaterally terminate the Program Agreement during the Program Term, except in the case of an event of default by a party thereunder, or a change in law or announced change in law that would have adverse consequences to the transactions under the Program or to the Issuer or either of the TD Entities.

 

23.          At least two clear Trading Days (as defined below) prior to the commencement of the Program, the Issuer will issue and file a press release that has been pre-cleared by the TSX that: (a) describes the material features of the Program, including the Program Term; (b) discloses the Issuer’s intention to participate in the Program during the Normal Course Issuer Bid; and (c) states that, immediately following the Program Term, the Issuer will issue and file the Completion Press Release (as defined below) (the “Commencement Press Release”).

 

24.          The Program Maximum is less than the number of Common Shares remaining that the Issuer is entitled to acquire under the Normal Course Issuer Bid, calculated as at the date of the Program Agreement.

 

25.          The Program Term will not include a Blackout Period. In the event that a Blackout Period should arise during the Program Term, purchasing under the Program will cease immediately and will not recommence until following the expiration of the Blackout Period.

 

26.          The TSX has: (a) been advised of the Issuer’s intention to enter into the Program; (b) been provided with a copy of the Program Agreement and a draft of the Commencement Press Release; and (c) confirmed that it has no objection to the Issuer conducting the Program as part of the Normal Course Issuer Bid.

 

27.          During the Program Term, TDSI will purchase Common Shares on the applicable Trading Day (as defined below) in accordance with instructions received by TDSI from the Issuer prior to the opening of trading on such Trading Day, which instructions will be the same instructions that the Issuer would have given to the Responsible Broker if the Issuer was conducting the Normal Course Issuer Bid in reliance on the Exemptions.

 

28.          The Issuer will not give purchase instructions in respect of the Program to TDSI at any time that the Issuer is aware of Undisclosed Information (as defined below).

 

29.          All Common Shares acquired for the purposes of the Program by TDSI on a day during the Program Term on which Canadian Markets are open for trading (each, a “Trading Day”) must be acquired on Canadian Markets in accordance with the TSX Rules and any by-laws, rules, regulations or policies of any Canadian Markets upon which purchases are carried out (collectively, the “NCIB Rules”) that would be applicable to the Issuer in connection with the Normal Course Issuer Bid, provided that:

 

(a)           the aggregate number of Common Shares to be acquired on Canadian Markets by TDSI on each Trading Day shall not exceed the maximum daily limit that is imposed upon the Normal Course Issuer Bid pursuant to the TSX Rules, determined with reference to an average daily trading volume that is based on the trading volume of the Common Shares on all Canadian Markets rather than being limited to the trading volume on the TSX only (the “Modified Maximum Daily Limit”), it being understood that the aggregate number of Common Shares to be acquired on the TSX by TDSI on each Trading Day will not exceed the maximum daily limit that is imposed on the Normal Course Issuer Bid pursuant to the TSX Rules; and

 

(b)           notwithstanding the block purchase exception provided for in the TSX Rules, no purchases will be made by TDSI on any Canadian Markets pursuant to any pre-arranged trade.

 

30.          The aggregate number of Common Shares to be acquired by TDSI in connection with the Program:

 

(a)           shall not exceed the Program Maximum; and

 

(b)           on Canadian Other Published Markets shall not exceed that number of Common Shares remaining eligible for purchase by the Issuer pursuant to the Other Published Markets Exemption, calculated as at the date of the Program Agreement.

 

31.          On every Trading Day, TDSI will purchase the Number of Common Shares. The “Number of Common Shares” will be no greater than the least of:

 

(a)           the maximum number of Common Shares that can be purchased using the Canadian dollar amount provided in the instructions received by TDSI from the Issuer prior to the opening of trading on such Trading Day;

 

(b)           the Program Maximum less the aggregate number of Common Shares previously purchased by TDSI under the Program;

 

(c)           on a Trading Day where trading ceases on the TSX or some other event that would impair TDSI’s ability to acquire Common Shares on Canadian Markets occurs (a “Market Disruption Event”), the number of Common Shares acquired by TDSI on such Trading Day up until the time of the Market Disruption Event; and

 

(d)           the Modified Maximum Daily Limit.

 

The “Discounted Price” per Common Share will be equal to: (i) the volume weighted average price of the Common Shares on the Canadian Markets on the Trading Day on which purchases were made less an agreed upon discount; or (ii) upon the occurrence of a Market Disruption Event, the volume weighted average price of the Common Shares on the Canadian Markets at the time of the Market Disruption Event less an agreed upon discount.

 

32.          TD will deliver to the Issuer that number of Inventory Shares equal to the number of Common Shares purchased by TDSI on a Trading Day under the Program on the second Trading Day thereafter, and the Issuer will pay TD, upon delivery, a purchase price equal to the Discounted Price for each such Inventory Share. Each Inventory Share purchased by the Issuer under the Program will be cancelled upon delivery to the Issuer.

 

33.          TD will not sell any Inventory Shares to the Issuer unless TDSI has purchased the equivalent number of Common Shares on Canadian Markets under the Program. The number of Common Shares that are purchased by TDSI on Canadian Markets under the Program on a Trading Day will be equal to the Number of Common Shares for such Trading Day. TDSI will provide the Issuer with a daily written report of TDSI’s purchases, which report will indicate, inter alia, the aggregate number of Common Shares acquired under the Program, the Canadian Market on which such Common Shares were acquired, and the Modified Maximum Daily Limit.

 

34.          During the Program Term, the Issuer will: (a) not purchase, directly or indirectly, any Common Shares (other than Inventory Shares purchased under the Program); and (b) prohibit the Responsible Broker from acquiring any Common Shares on its behalf.

 

35.          All purchases of Common Shares under the Program will be made by TDSI and neither of the TD Entities will engage in any hedging activity in connection with the conduct of the Program.

 

36.          The Issuer will report its purchases of Common Shares under the Program to the TSX in accordance with the TSX Rules. In addition, immediately following the end of the Program Term, the Issuer will: (a) report the total number of Common Shares acquired under the Program to the TSX and the Commission; and (b) issue and file a press release that announces the completion of the Program and sets out the number of Common Shares acquired under the Program and the aggregate dollar amount paid for such Common Shares (the “Completion Press Release”).

 

37.          The Issuer is of the view that: (a) it will be able to purchase Common Shares from TD at a lower price than the price at which it would be able to purchase an equivalent quantity of Common Shares under the Normal Course Issuer Bid in reliance on the Exemptions; and (b) the purchase of Common Shares pursuant to the Program is in the best interests of the Issuer and constitutes a desirable use of the Issuer’s funds.

 

38.          The entering into of the Program Agreement, the purchase of Common Shares by TDSI in connection with the Program, and the sale of Inventory Shares by TD to the Issuer will not adversely affect the Issuer or the rights of any of the Issuer’s security holders and it will not materially affect control of the Issuer.

 

39.          The sale of Inventory Shares to the Issuer by TD will not be a “distribution” (as defined in the Act).

 

40.          The Issuer will be able to acquire the Inventory Shares from TD without the Issuer being subject to the dealer registration requirements of the Act.

 

41.          At the time that the Issuer and the TD Entities enter into the Program Agreement, neither the Issuer, nor any member of the Equity Derivatives group of TD, nor any personnel of either of the TD Entities that negotiated the Program Agreement or made, participated in the making of, or provided advice in connection with, the decision to enter into the Program Agreement and sell the Common Shares, will be aware of any “material change” or “material fact” (each as defined in the Act) with respect to the Issuer or the Common Shares that has not been generally disclosed (the “Undisclosed Information”).

 

42.          Each of the TD Entities:

 

(a)           has policies and procedures in place to ensure that the Program will be conducted in accordance with, among other things, the Program Agreement and this Order, and to preclude those persons responsible for administering the Program from acquiring any Undisclosed Information during the conduct of the Program; and

 

(b)           will, prior to entering into the Program Agreement: (i) ensure that its systems are capable of adhering to, and performing in accordance with, the requirements of the Program and this Order; and (ii) provide all necessary training and take all necessary actions to ensure that the persons administering and executing the purchases under the Program are aware of, and understand the terms of this Order.

 

                AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

 

                IT IS ORDERED pursuant to section 6.1 of NI 62-104 that the Issuer be exempt from the Issuer Bid Requirements in respect of the purchase of Inventory Shares from TD pursuant to the Program, provided that:

 

(a)           at least two clear Trading Days prior to the commencement of the Program, the Issuer issues and files the Commencement Press Release;

 

(b)           all purchases of Common Shares under the Program are made on Canadian Markets by TDSI, and are:

 

(i)            made in accordance with the NCIB Rules applicable to the Normal Course Issuer Bid, as modified by paragraph 29 of this Order;

 

(ii)           taken into account by the Issuer when calculating the maximum annual aggregate limits that are imposed upon the Normal Course Issuer Bid in accordance with the TSX Rules, with those Common Shares purchased on Canadian Other Published Markets being taken into account by the Issuer when calculating the maximum aggregate limits that are imposed upon the Issuer in accordance with the Other Published Markets Exemption;

 

(iii)          marked with such designation as would be required by the applicable marketplace and UMIR for trades made by an agent of the Issuer; and

 

(iv)          monitored by the TD Entities on a continual basis for the purposes of ensuring compliance with the terms of this Order, NCIB Rules, and applicable securities law;

 

(c)           during the Program Term: (i) the Issuer does not purchase, directly or indirectly, any Common Shares (other than Inventory Shares purchased under the Program); and (ii) no Common Shares are purchased on behalf of the Issuer by the Responsible Broker;

 

(d)           the number of Inventory Shares transferred by TD to the Issuer for purchase under the Program in respect of a particular Trading Day is equal to the number of Common Shares purchased by TDSI on Canadian Markets under the Program in respect of the Trading Day;

 

(e)           no hedging activity is engaged in by the TD Entities in connection with the conduct of the Program;

 

(f)            at the time that the Program Agreement is entered into by the Filers and TDSI:

 

(i)            the Common Shares are “highly-liquid securities”, as that term is defined in section 1.1 of OSC Rule 48-501 and section 1.1 of UMIR; and

 

(ii)           none of the Issuer, any member of the Equity Derivatives group of TD, or any personnel of either of the TD Entities that negotiated the Program Agreement or made, participated in the making of, or provided advice in connection with, the decision to enter into the Program Agreement and sell the Common Shares, was aware of any Undisclosed Information;

 

(g)           no purchase instructions in respect of the Program are given by the Issuer to TDSI at any time that the Issuer is aware of Undisclosed Information;

 

(h)           no purchases of Common Shares under the Program occur during a Blackout Period;

 

(i)            the TD Entities maintain records of all purchases of Common Shares that are made by TDSI pursuant to the Program, which will be available to the Commission and IIROC upon request; and

 

(j)            in addition to reporting its purchases of Common Shares under the Program to the TSX in accordance with the TSX Rules, immediately following the end of the Program Term, the Issuer will: (i) report the total number of Common Shares acquired under the Program to the TSX and the Commission; and (ii) issue and file the Completion Press Release.

 

                DATED at Toronto, Ontario, this 19th day of July, 2017.

 

“Naizam Kanji”

Director, Office of Mergers & Acquisitions

Ontario Securities Commission