Securities Law & Instruments



NOTICE OF RULE

UNDER THE SECURITIES ACT
NATIONAL INSTRUMENT 62-103
THE EARLY WARNING SYSTEM AND RELATED
TAKE-OVER BID AND INSIDER REPORTING ISSUES

Notice of Rule

The Commission has, under section 143 of the Securities Act (the "Act"), made National Instrument 62-103 TheEarly Warning System and Related Take-Over Bid and Insider Reporting Issues (the "National Instrument") as aRule under the Act.

The National Instrument and the material required by the Act to be delivered to the Minister of Finance weredelivered on December 14, 1999. If the Minister does not approve the National Instrument, reject the NationalInstrument or return it to the Commission for further consideration by February 28, 2000, or if the Minister approvesthe National Instrument, the National Instrument will come into force, pursuant to section 12.1 of the NationalInstrument, on March 15, 2000.

The National Instrument has been made a rule concurrently with National Instrument 62-101 Control BlockDistribution Issues and National Instrument 62-102 Disclosure of Outstanding Share Data (collectively, the "EarlyWarning Instruments").

The National Instrument is an initiative of the Canadian Securities Administrators ("CSA"), and the NationalInstrument is expected to be adopted as a rule in each of British Columbia, Alberta, Manitoba, Ontario and NovaScotia, as a Commission regulation in Saskatchewan, and as a policy in all other jurisdictions represented by theCSA.

The CSA published for comment a draft of the National Instrument, and the other Early Warning Instruments, inSeptember 1998.(1) During the comment periods on the Early Warning Instruments, the CSA received submissionsfrom a number of commenters. Nine commenters commented specifically on National Instrument 62-103. Thenames of these commenters and the summary of their comments, together with the CSA responses to thosecomments, are contained in Appendix A of this Notice. Reference should be made to the Notice of Rule for each ofNational Instruments 62-101 and 62-102 for a summary and discussion of the specific comments on thoseinstruments. In addition, some of the comments related generally to the Early Warning Instruments; thosecomments are summarized and discussed in this Notice.

The version of National Instrument 62-103 published in 1998 is referred to in this Notice as the "1998 Draft".

As the result of consideration of the comments, the CSA have made a number of minor amendments to NationalInstrument 62-103 and the other Early Warning Instruments. However, as these changes are not material, the CSAare not republishing those instruments for a further comment period.

Substance and Purpose of the National Instrument

The primary purpose of the National Instrument is to provide exemptions from the early warning requirements, theinsider reporting requirement, and related provisions to certain institutional investors that have a "passive intent" withrespect to their ownership or control of securities of reporting issuers and to permit those entities to disaggregatesecurities that they own or control for purposes of those requirement in certain circumstances. This relief isdesigned to facilitate compliance by financial institutions, pension funds, certain mutual funds, portfolio managers,portfolio clients, underwriters in the course of a distribution and pledgees.

Summary of Changes to the National Instrument from the 1998 Draft

This section describes the substantive changes made in the National Instrument from the 1998 Draft. For a detailedsummary of the contents of the 1998 Draft, reference should be made to the notice that was published with the 1998Draft.

Section 1.1

Section 1.1 has been amended in several ways.

The definition of "applicable provisions" has been amended in three ways. First, the reference to subsection 9.1(4)of the National Instrument has been deleted. That reference relates to the ability to use the exemption from theinsider reporting requirements contained in section 9.1 of the National Instrument, and is redundant in light of thefact that the definition of "applicable provisions" already includes the "insider reporting requirement". Second, thereference to subsection 2.1(2) of National Instrument 62-101 has been changed to a reference to section 2.1 of thatNational Instrument. The CSA are satisfied that any relief provided in the National Instrument in respect of"applicable provisions" should properly extend to all of section 2.1 of National Instrument 62-101. Third, a referenceto Quebec Policy Statement Q-12 has been added; this addition has been made to ensure that aggregation and Part8 relief is available in connection with control block distributions in Quebec. As a commenter noted, securitieslegislation in Quebec does not have a definition of "control block", but Policy Statement Q-12 is a functionalequivalent.

The definition of "control" has been amended to make specific reference to the language used in securitieslegislation in connection with the concept of "control". Concern had been expressed in comments that the definitionused in the 1998 Draft may inadvertently have changed the operative "control" language used in securitieslegislation. The new definition defines "control" as "the power to exercise control or direction over" a security, butincludes similar terms or expressions used in securities legislation. The reference to similar terms or expressions isdesigned to reflect the fact that the wording of the "control" concept in different legislation varies from jurisdiction tojurisdiction.

The definition of "eligible institutional investor" has been changed by the deletion of the phrase "full discretionaryauthority" in paragraph (d), and the replacement of that phrase with a reference to "discretion to vote, acquire ordispose of securities without the express consent of the beneficial owner". The CSA have made this change toclarify what they meant in the 1998 Draft by the phrase "full discretionary authority". The definition has also beenchanged to ensure that investment managers are eligible institutional investors only in connection with the securitiesover which they have discretion.

A definition of "entity" has been added to the National Instrument. That term is defined to mean a person orcompany or a business unit. The term has been added to the Instrument in response to commenters that noted thatreferences to a "person or company" in various references in the 1998 Draft might not technically catch a businessunit when necessary. The CSA have therefore amended the Instrument generally throughout to change referencesfrom a "person or company" to an "entity" in order to respond to this concern.

The definition of "financial institution" has been amended, following comments received in response to the request ofthe CVMQ in the Notice that was published with the 1998 Draft, to include financial institutions of the G-7 countries.

The definition of "investment manager" has been amended in a manner similar to the definition of "financialinstitution" and now includes investment management entities of the G-7 countries.

The definitions of "offeror" and "offeror's securities" have been amended to include appropriate references under theSecurities Act (Quebec).

The definition of "securityholder percentage" has been amended to clarify that the definition takes into account anyaggregation relief relied upon by an entity calculating its holdings of a particular class of security. Some commentersexpressed confusion on this point. In addition, the reference in the definition to securities legislation listed inAppendix A has been amended to refer to "applicable" securities legislation. This reflects the fact that some of thesecurities legislation listed in Appendix A will not be applicable in connection with all calculations of "securityholderpercentage".

The definition of "underwriting period" has been amended to ensure that the period covered by the definition, forsecurities acquired by an underwriter upon the exercise of an over-allotment option, extends to four business daysafter the acquisition of such securities. This change was made in response to comments recommending that thepossibility of an over-allotment option be built into the definition.

Section 3.3

Section 3.3 is new, and has been added to provide that the early warning requirements do not apply in connectionwith the ownership or control of securities issued by a mutual fund to which National Instrument 81-102 MutualFunds applies. This change reflects existing practice in the market. The CSA are satisfied that there are nocompelling policy reasons to require early warning reporting in connection with the acquisition of securities ofpublicly-traded mutual funds, having regard to the investment restrictions to which those funds are subject.

Section 4.3

Paragraph 4.3(1)(b) has been amended to require the filing of the report referred to in that section within twobusiness days, rather than three days, after the related filing of a press release. The CSA are of the view that thetwo business day time period more properly accommodates weekends and holidays.

Section 4.7

Section 4.7 has been amended to clarify that a report referred to in that section must include the name of thereporting issuer to which the report relates.

Section 5.1

Paragraph (c) of section 5.1 has been amended to clarify that eligible institutional investors may establishorganization-wide investment guidelines without losing the ability to rely on the aggregation relief provided in thissection. A similar change has been made to paragraph (d) of section 5.2.

Section 5.4

Section 5.4 has been amended to extend its application to affiliates and associates of eligible institutional investors.

Section 6.1

Section 6.1 has been amended to apply to transactions effected under National Instrument 32-101 SmallSecurityholder Selling and Purchase Arrangements.

Section 7.1

The lead-in language to this section has been amended to extend the relief provided by the section to securities thatare convertible into, exercisable for or exchangeable for, underwritten securities.

Section 8.1

This section has been amended to extend the relief provided by the section to any person or company that receivespledged, mortgaged or encumbered securities as collateral for a debt under a written pledge agreement and in theordinary course of the business of the person or company. In the 1998 Draft, this relief was proposed to be madeavailable only to financial institutions. After consideration of comments, the CSA are satisfied that the relief shouldproperly apply to all entities that make secured loans as part of their business.

Section 8.2

This section has been revised from the 1998 Draft to clarify its meaning. The section provides relief for pledgees ofsecurities, even if the pledgee has taken steps to dispose of the securities for the purpose of realizing on the loan inquestion, so long as the securities in question relate to a loan of less than $2,000,000 and do not form part of acontrol block.

Section 10.1

This section has been amended to provide relief from the moratorium provisions for eligible institutional investorssubject to the moratorium provisions of section 4.4. This provision clarifies that an eligible institutional investorrelying on the alternative monthly reporting system, and who is therefore subject to the moratorium provisionscontained therein, should not be subject to the moratorium provisions associated with the early warningrequirements, from which the eligible institutional investor is exempt.

Section 12.1

Section 12.1 has been added to provide that the National Instrument comes into force on March 15, 2000.

Amendment of Regulation - Ontario

In Ontario, the Ontario Commission has amended Regulation 1015 of the Revised Regulations of Ontario, 1990 (the"Regulation"), in conjunction with the making of the National Instrument as a rule in Ontario, by deleting sections 197and 199 of the Regulation. The amendments come into force at the time that the National Instrument comes intoforce.

Text of National Instrument

The text of the National Instrument follows.

DATED: December 17, 1999

 

APPENDIX A
LIST OF COMMENTERS
ON
NATIONAL INSTRUMENT 62-103

1. Simon Romano, Stikeman, Elliott (October 13, 1998).

2. The Investment Funds Institute of Canada (December 7, 1998).

3. Securities Subcommittee of the Business Law Section of the Canadian Bar Association (Ontario)(December 9, 1998).

4. RT Investment Management Holdings Inc. (December 14, 1998).

5. Ogilvy Renault (December 15, 1998).

6. Power Corporation of Canada (December 15, 1998).

7. Canadian Bankers Association (December 15, 1998 and January 8, 1999).

8. Sun Life Assurance Company of Canada (December 27, 1998).

9. Investment Dealers Association of Canada (March 30, 1999).

APPENDIX B
SUMMARY OF COMMENTS RECEIVED
ON
DRAFT NATIONAL INSTRUMENT 62-103
AND
RESPONSE OF THE CANADIAN SECURITIES ADMINISTRATORS

1. INTRODUCTION

On September 4, 1998, the Canadian Securities Administrators (the "CSA") published for comment NationalInstrument 62-103 The Early Warning System and Related Take-over Bid and Insider Reporting Issues. NationalInstrument 62-103 was published currently with proposed National Instrument 62-101 Control Block DistributionIssues and National Instrument 62-102 Disclosure of Outstanding Share Data.

In this Notice, the version of the National Instrument 62-103 published in September 1998 is called the "1998 Draft"and the version published with this Notice is called the "National Instrument". National Instruments 62-101, 62-102and 62-103 are collectively called the "Early Warning Instruments".

CSA received 10 submissions on the 1998 Draft from 9 commenters. The commenters providing the submissionscan be grouped as follows:

Trade Associations 3

  • Canadian Bankers Association ("CBA")(2 letters)
  • Securities Subcommittee of the Business Law Section of the Canadian Bar Association(Ontario) (the "Securities Subcommittee")
  • The Investment Funds Institute of Canada ("IFIC")

Self-Regulatory Organizations 1

  • Investment Dealers Association of Canada ("IDA")
  • Financial Institutions 3
  • Power Corporation of Canada ("Power")
  • RT Investment Management Holdings ("RT")
  • Sun Life Assurance Company ("Sun Life")

Law Firms and Lawyers 2

  • Ogilvy Renault ("Ogilvy")
  • Simon Romano ("Romano")

TOTAL 9

Copies of the comment letters may be viewed at the office of Micromedia, 20 Victoria Street, Toronto, Ontario (416)312-5211 or (800) 387-2689; the office of the British Columbia Securities Commission, 200-865 Hornby Street,Vancouver, British Columbia (604) 899-6660; the office of the Alberta Securities Commission 410-3005th Avenue S.W., Calgary, Alberta (403) 297-6454; and the office of the Commission des valeurs mobilières duQuébec, Stock Exchange Tower, 800 Victoria Square, 22nd Floor, Montréal, Québec (514) 940-2150.

As the result of consideration of the comments, the CSA have made a number of minor amendments to the NationalInstrument 62-103 and the other Early Warning Instruments. However, as these changes are not material, the CSAare not republishing those instruments for a further comment period.

 

The following is a summary of the comments received, together with the CSA's responses and, where applicable, theproposed changes in response to the comments. Terms used in this summary that are defined in the NationalInstrument have the meanings ascribed to them in that Instrument.

2. GENERAL COMMENTS

This section of the Notice describes the comments received on a number of general issues related to the 1998 Draftand to the Early Warning Instruments generally.

General Reaction to the Early Warning Instruments

Some commenters indicated their general support for the CSA initiative relating to the Early Warning Instruments,noting that the initiative dealt with a regulatory area that needed reform. No commenter urged abandonment of theinitiative.

Power indicated its general support of the National Instrument, particularly with respect to aggregation relief, statingthat the National Instrument represented a substantial step forward, bringing the rules into line with practical reality.(Power also indicated its support of the specific comments on the National Instrument made by IFIC.) IFIC alsosupported the National Instrument, which it said will provide some welcome relief from the early warning, reportingand take-over bid provisions under securities law; IFIC also supported the alternative monthly reporting system,which it stated is already used by some IFIC members with success. RT was also supportive of the CSA's initiativeand objective in establishing a uniform and standard set of early warning rules that will apply across all provinces inCanada. RF mentioned that the proposed alternative monthly reporting system is a "fair compromise", balancingrecognition of the passivity of investors, client confidentiality and providing reporting issuers with information onthose who vote securities.

Harmonization

The CBA emphasized the importance of there being a uniform approach across Canada for the matters covered bythe National Instrument. The CBA stated that it was "vital that the reporting requirements under the early warning,insider reporting and related regimes be absolutely uniform across all Canadian jurisdictions". The CBA "stronglydiscouraged" any provincial commission from deviating from the national rules.

The Securities Subcommittee urged the CSA to approach the Director under the Canada Business Corporations Act("CBCA") in order to determine if the Director would support a similar approach taken with respect to somerequirements under the CBCA in order to promote harmonization between matters dealt with in the Early WarningInstruments that are also dealt with in the CBCA. IFIC emphasized the current difficulty posed by the inconsistencybetween the take-over bid thresholds in the CBCA and under provincial securities law, and urged the CSA to assistin the process of harmonizing these requirements.

CSA Response

The CSA agree with the importance of harmonization expressed in the comments. With respect to the commentsconcerning the CBCA, the CSA note that discussions have commenced with the Director under the CBCAconcerning the harmonization of some CBCA provisions with corresponding provisions of securities legislation.

Special Warrants and Convertible Securities

The CBA noted that the proposed relief for special warrants contained in the Ontario draft rule published forcomment in 1995 (the "Ontario Draft Rule")(2) has not been included in the National Instrument. The CBA stated thatit believed that the relief was necessary to ensure accurate early warning reporting given the nature of specialwarrants. Romano also asked why the relief for special warrants has disappeared.

IFIC stated that, in other regimes, securities regulatory authorities have allowed securityholders to "look through"special warrants to the actual ownership they represent in a reporting issuer. IFIC noted subsection 2.1(4) ofNational Instrument 81-102 Mutual Funds. IFIC stated that it "strongly believed" that this concept should be carriedforward in National Instruments 61-102 and 61-103.

CSA Response

The CSA believe that the regular application of securities legislation is generally appropriate for special warrants,and have made no special provisions for special warrants in the National Instrument.

Repurchase Agreements

The CBA commented that the Early Warning Instruments do not consider the position of repurchase agreements("repos") in the context of the aggregation requirements. The CBA stated that equity repos will become an importantfinancing technique in Canada within the near future, and the CBA believes that this issue needs to be considered inthe context of the Early Warning Instruments. The CBA stated that it would appear, from a technical point of view,that securities acquired by financial institutions as part of a repo transaction must be aggregated for purposes of theearly warning rules. The CBA argued that repos, like pledged securities, are merely a financing technique and thefinancial institutions do not acquire the securities for an investment purpose. The CBA argued that repos aretypically held by financial institutions for very short periods of time, making tracking and recording difficult andcumbersome as a practical matter. The CBA expressed concern that the Early Warning Instruments not impede thedevelopment and growth of this important financing technique in Canada. The CBA therefore submitted that it wouldbe consistent to treat securities acquired by financial institution through a repo transaction in the same manner thatpledged securities are treated for all purposes under the Early Warning Instruments.

CSA Response

The CSA do not propose to amend the National Instrument at the present time in order to accommodate or dealspecifically with repos. The CSA understand that equity repos are not a major component of the Canadian capitalmarkets at this time and do not believe changes to the National Instrument in connection with repos are necessary atthis time. The CSA recognize the recordkeeping complexity that repos could cause financial institutions and notethat some relief might be appropriate with respect to repos in the future.

Securities of Mutual Funds Being Subject to Early Warning Requirements

The Securities Subcommittee and SunLife submitted that the National Instrument should exempt the securities ofopen-ended mutual funds from being reported on under the early warning requirements. The commenters statedthat since the securities of open-ended mutual funds do not trade, but are redeemable on demand, the liquidityproblems that may affect publicly traded securities do not arise. It was submitted that, therefore, early warningreporting is not required to inform the markets about the existence of significant blocks of securities. Take-over bidsare also not a concern for open-ended mutual funds, so early warning reporting is not required to warn the market ofa potential bid. The commenters acknowledged that early warning reporting in respect of mutual funds may be notbe required frequently, but in circumstances when such reporting is required, the commenters stated that they do notthink it serves any useful market function or policy objective.

The commenters also stated that if the CSA do not accept this recommendation, in the alternative open-endedmutual funds themselves, as well as segregated funds, should be exempted from early warning reporting regardingtheir ownership of securities of open-ended mutual funds. The extent to which funds-of-funds and segregated fundsinvest in open-ended mutual funds will be disclosed in their respective prospectuses and information folders. Thecommenters noted that relief from early warning reporting is generally given and orders granted by CSA members topermit the operation of funds-of-funds. The commenters inferred from this that the CSA have acknowledged thatpublic policy does not require early warning reporting in the context of these types of investments.

CSA Response

The CSA agree with the recommendation and have added section 3.3 to the National Instrument to provide that theearly warning requirements do not apply in connection with the ownership or control of securities issued by a mutualfund to which National Instrument 81-102 applies. This change reflects existing practice in the market. The CSA aresatisfied that there are no compelling policy reasons to require early warning reporting in connection with theacquisition of publicly-traded mutual funds, having regard to the investment restrictions to which those funds aresubject.

Deletion of Relief for Inadvertent Take-over Bids

A number of commenters commented on the absence from the National Instrument of relief for inadvertent take-overbids.

The CBA suggested that conditions to the relief could be constructed to limit potential for abuse and urged the CSAto reconsider the decision to not include the relief, which had been contained in the Ontario Draft Rule. The CBAsuggested that if relief is not incorporated into the rules, then the CSA adopt a national policy that outlines theposition of the CSA in connection with an inadvertent crossing of a threshold by a passive institutional investor. TheSecurities Subcommittee also argued that the provision for inadvertent take-over bids was useful, particularly forforeign institutional investors who do not always obtain prior legal advice when purchasing securities in the Canadianmarket, and can easily run afoul of Canadian reporting rules, even when their intentions are entirely passive. TheSecurities Subcommittee also urged the CSA to provide guidance as to the circumstances, if any, in which the CSAwould be prepared to grant relief for inadvertent bids. SunLife also urged the retention of these provisions. Romanorequested clarification of the CSA's position as to whether retroactive relief is possible.

CSA Response

The CSA are of the view that, having regard to the wide variety of circumstances that may be present in the case ofinadvertent take-over bids, that it is not possible to state a general policy concerning this issue or to provide blanketrelief. Inadvertent take-over bids will continue to be considered on a case-by-case basis.

Other Proposed Take-over Bid Relief

RT raised concerns concerning the 20 percent take-over bid threshold of securities legislation. RT stated that,based on the small size of Canadian capital markets, a passive investor acting on behalf of a large client base couldeasily exceed this limit. RT stated that this limit was established many years ago before the rapid development ofgrowth of the investment management industry. RT recommended that the CSA address this issue as part of itsreview of the Early Warning Instruments.

CSA Response

The CSA are not, at this time, proposing any amendments to securities legislation concerning the take-over bidthreshold. That is outside the scope of the Early Warning Instruments.

Companion Policy

The Securities Subcommittee asked that a companion policy for the National Instrument be provided, on the basisthat the National Instrument is highly technical and that interpretative guidance would be helpful.

CSA Response

The CSA do not believe that a companion policy is necessary in connection with the National Instrument.

3. SPECIFIC REQUESTS FOR COMMENTS FROM THE CVMQ

In the 1998 Notice, the CVMQ specifically requested comment on two issues.

Definition of "financial institution"

A "financial institution" is one type of "eligible institutional investor" under the 1998 Draft and may therefore beentitled to the various types of relief provided. The definition of "financial institution" contained in the 1998 Draftincluded entities engaged in financial services activities that are supervised and regulated under the insurance lawsof the United Kingdom of Great Britain and Northern Ireland. In the 1998 Notice, the CVMQ requested comment onwhether the definition of "financial institution" should be expanded to include entities engaged in financial servicesactivities that are entitled to carry on business in Canada and that are supervised and regulated under the insurancelaws of any country.

Two responses were received in response to that request.

Ogilvy commented that the definitions of "eligible institutional investor" and "financial institution" should be expandedto encompass not only Canadian, U.S. and U.K. financial institutions, but also comparable financial institutions ofother countries having supervisory or regulatory legislation comparable to those existing in Canada, the U.S. and theU.K. Ogilvy stated that, at the very least, the definitions should be expanded to include financial institutions from theG-7 countries.

Romano also submitted that the list should be expanded to include G-7 financial institutions generally.

CSA Response

The CSA, including the CVMQ, agree with the comments. The definitions of "financial institution" and "investmentmanager" have been amended to include financial institutions of the G-7 countries.

Structure of Aggregation Relief

In the 1998 Notice, the CVMQ requested specific comment on whether the structure of the relief provided by section5.1 of the 1998 Draft is appropriate in that it would enable the creation of a large number of business units that willbe automatically entitled to aggregation relief without the securities regulators' discretionary evaluation. The CVMQindicated that it would propose to provide aggregation relief only to certain specifically delineated classes ofinstitution, with other eligible institutional investors entitled to obtain relief upon application and the exercise by theauthorities of their discretionary powers.

Six commenters commented on the CVMQ proposal and were unanimous in recommending against it.

Ogilvy stated that it agreed with the general approach of the 1998 Draft as one that "appears to blend very well withthe trend towards self-regulation which has recently received the support of the CVMQ, more particularly in theframing of the proposed new regime for conflicts of interest in Bill 187". Ogilvy supported aggregation relief forfinancial conglomerates, arguing that compliance with the existing rules is "in many cases, impossible for suchfinancial conglomerates and in many instances extremely difficult also for other members of the investing public...therequirement to aggregate the holdings of all affiliates and, in some cases, of associates appears to us to be anexcellent example of regulatory over-reach where regulatory convenience has led to the imposition of regulatoryburdens which far surpass the legitimate regulatory concerns sought to be addressed".

The CBA stated that it was very concerned with the approach proposed by the CVMQ, and that it "strongly believesthat a requirement to apply for the aggregation relief in Part 5 [as suggested by the CVMQ] will impose a regulatoryburden on both industry participants and commission staff that cannot be justified for policy reasons...We are alsovery concerned that it will be difficult to ensure that similar applications are treated equally from jurisdiction tojurisdiction (and even within jurisdictions) thus defeating the CSA objective to harmonize securities regulation acrossthe country".

The Securities Subcommittee stated that the CVMQ approach would "create an unnecessary and costly burden oninstitutional investors and on the CSA in processing requests".

IFIC stated that the relief proposed to be granted in Part 5 of the 1998 Draft is not without significant restriction,which gives the CSA adequate control over the disaggregation process. IFIC noted that the CVMQ provided nodetail as to why it is troubled by the scope of the aggregation relief proposed to be granted in Part 5 nor for therationale for its approach. IFIC stated that "as the justification for the CVMQ's proposal is not apparent, we muststrongly object to it. It would be entirely unworkable and render NI 62-103 effectively useless if the CVMQ did notopt in and follow the same rules..." IFIC also stated that the CVMQ proposal would also perpetuate the "unlevelplaying field" on which mutual fund companies and some financial institutions operate.

RT stated that the proposal of the CVMQ is "not feasible". In the view of RT, the conditions contained in the rule aresufficient to protect the market.

Romano argued that the approach of the 1998 Draft was consistent with the interpretative guidelines issued by theU.S. Securities and Exchange Commission ("SEC") in January 1998. He stated that the exercise of discretionaryrelief seems unnecessary and costly given that the National Instrument is dealing with passive institutional investors.

CVMQ Response

The CVMQ notes the comments received in respect of its specific requests for comments.

4. COMMENTS ON SPECIFIC PROVISIONS OF THE 1998 DRAFT

Part 1 - Definitions and Interpretation

Section 1.1 - Definition of "applicable definitions" and "applicable provisions"

These definitions are used to define the provisions of securities regulation in respect of which relief is provided underthe National Instrument.

The CBA commented that those terms did not extend the business unit aggregation relief in Part 5 of the NationalInstrument to all of the appropriate circumstances. The CBA commented that the definitions needed to be expandedto include National Instrument 62-101, all of Part 9 of the National Instrument and section 102 of the Securities Act(Ontario) (the "Ontario Act") and similar sections of the securities legislation of other jurisdictions.

The CBA also noted that a recent amendment to Ontario Rule 14-501 Definitions included a definition of "principalshareholder" that refers to control or direction. The CBA indicated that this will need to be subject to aggregationrelief. The CBA suggested that a broad provision applicable to all numerical thresholds in securities laws shouldalso be included so as not to miss anything else.

Romano suggested that the definition "acquisition announcement provisions" should be added to the definition of"applicable provisions" in order to provide for aggregation relief for such purposes. Romano also suggested that thedefinition of "applicable provisions" be broadened to have more general applicable in respect of general ownershipconcepts in other areas, such as the proposed National Instrument 45-101 concerning rights offerings.

CSA Response

The CSA agree that the definition of "applicable provisions" should extend to all insider reporting requirements, andhave therefore deleted the reference to subsection 9.1(4) in the 1998 Draft. As a result, aggregation relief will beavailable in respect of all "insider reporting requirements" under paragraph (d) of the definition, and that availability inconnection with Part 9 of the National Instrument will not be limited by a reference to subsection 9.1(4).

The CSA agree that the definition should extend to all of section 2.1 of National Instrument 62-101, and haveamended the definition accordingly. As described in the Notice of Rule for National Instrument 62-101, the definitionhas not been expanded to include section 2.2 of that National Instrument.

Finally the CSA have added a reference to the "acquisition announcement provisions" to the definition.(3) Uponconsideration, the CSA believe that it would be consistent with the rest of the National Instrument to permit aneligible institutional investor to apply disaggregation under Part 5 for purposes of compliance with those provisions.To do otherwise would undermine some of the relief provided by the National Instrument, because an eligibleinstitutional investor would be able to comply with the early warning or alternative monthly reporting requirements ona disaggregated basis, but would still have to monitor its compliance with the acquisition announcement provisionson a fully aggregated basis.

The CSA have not added any general provision to the National Instrument providing for aggregation relief for allpurposes under securities law. The CSA wish to provide relief only in respect of provisions specifically consideredby the CSA.

Definition of "business unit"

The CBA recommended clarification of this definition and asked for confirmation that the definition would notpreclude financial institutions from setting up the appropriate structures so that branches, or portions of branches,can be treated as different businesses.

Romano recommended that the CSA clarify that branches, or portions of branches, may in appropriatecircumstances be considered "business units" for the purpose of the aggregation requirements.

CSA Response

The CSA believe that the definition is clear, and do not propose to change it. The CSA have added a definition of"entity" to the definitions section of the National Instrument, which is defined to include "a person or company" and a"business unit". The term "entity" is used throughout the National Instrument to replace the term "person orcompany". The use of the term "entity" is designed to eliminate some confusion over the applicability of variousprovisions in the National Instrument to business units.

Definition of "control"

The CBA recommended revising the definition of "control" to clarify that the definition would not have the effect ofchanging applicable legal principles and provided proposed wording to the CSA. The CBA expressed concern thatthe addition of the reference in the definition to "the right" to exercise control or direction may lead to uncertainresults. Romano also suggested that using the term "right" has added a "new concept to the mix".

Romano has also questioned whether it was appropriate to use a single definition of "control", when that conceptrepresents slightly different terms used in various places in securities legislation. Romano notes that the concept of"exercising" control or direction is used in the insider reporting and take-over bid provisions of Ontario securitieslegislation, the concept of having the "power to exercise" is used in the early warning provision and the concept of"holdings" is used in the control block provisions. Romano questioned whether it was appropriate to lump thesedifferent concepts together under one term.

CSA Response

The definition of "control" is intended only to be an abbreviated version of the words "the power to exercise control ordirection over", "exercises control or direction over" and analogous terms used in securities legislation, in order toimprove the clarity and readability of the National Instrument. The intent was not to create any new concepts fromthose represented by those words under securities legislation. In order to clarify the use of the term, the definition of"control" has been amended to make specific reference to the language used in securities legislation in connectionwith the concept of "control". The new definition defines "control" as "the power to exercise control or direction over"a security, but includes similar terms or expressions used in securities legislation. The reference to similar terms orexpressions is designed to reflect the fact that the wording of the "control" concept in different legislation varies fromjurisdiction to jurisdiction.

Definition of "control block distribution"

Ogilvy suggested that the definition be revised to include a reference to the provisions of Policy Statement Q-12 ofthe CVMQ. Ogilvy noted that Policy Statement Q-12 provides for a separate resale regime for shares held by aprincipal shareholder and it is "generally considered as a functional "second cousin" to the control block distributionprovisions existing in the securities legislation of other Canadian provinces".

Ogilvy also noted that the definition of "control block distribution" in the National Instrument was different from thedefinition of "control distribution" in National Instrument 62-101.

CSA Response

The CSA have added a reference to Quebec Policy Statement Q-12 to the definition of "applicable provisions" inresponse to Ogilvy's first comment.

The CSA have amended the definition of "control distribution" in National Instrument 62-101 to "control blockdistribution" to be closer to "control block distribution definition". It is noted, of course, that the definition in NationalInstrument 62-101 pertains to trades that are "control block distributions", whereas the definition in the NationalInstrument pertains to the provisions of securities legislation for purposes of the definition of "applicable definitions";therefore the two definitions are not identical.

Definition of "eligible institutional investor"

Mutual Funds and other investment vehicles

The definition of "eligible institutional investor" includes "a mutual fund that is not a reporting issuer". The SecuritiesSubcommittee, Sun Life and Romano suggested that the mutual funds that were reporting issuers should beincluded in the definition and therefore eligible to benefit from the relief provided by the National Instrument,particularly in connection with the ability to use the alternative monthly reporting system. Sun Life and the SecuritiesSubcommittee argued that the regulatory regime under which mutual funds operate generally prevents them fromacquiring more than 10 percent of the shares of an issuer and prevents them from acquiring securities for thepurpose of exercising control or direction over an issuer. The commenters noted that if a mutual fund has obtained avariation of the 10 percent restriction from the regulators, the manner and extent to which the mutual fund mayexceed that 10 percent restriction will be set out in its prospectus and so will be a matter of public record. In thosecircumstances, the policy objective behind the early warning requirement of informing the markets about theexistence of significant blocks of securities would be met by the prospectus disclosure and by the monthly reports.SunLife and the Securities Subcommittee argued that there may be circumstances in which the investment managerresponsible for the portfolio management of a mutual fund would be reporting under the alternative monthly reportingsystem, but the mutual fund would have to report under the early warning requirements. It was suggested that thiswould result in administrative inefficiency and undue costs to the investment manager and the mutual fund.

IFIC suggested that public mutual funds were already included in the definition of "eligible institutional investor" byvirtue of paragraph (d) of the definition (which relates to an investment manager "exercising full discretionaryauthority over securities"). IFIC noted that there are pooled funds in the market that are bigger than some publicmutual funds. IFIC urged that, for clarification, public mutual funds should be expressly included in the definition of"eligible institutional investor".

Several commenters also stated other investment vehicles, such as segregated funds or closed-end investmentvehicles, should be included in the definition.

CSA Response

The CSA emphasize that public mutual funds are not included in the definition of "eligible institutional investor". Theinvestment manager of a public mutual fund may be an "eligible institutional investor", but not the mutual fund itself.Therefore, mutual funds themselves cannot avail themselves of section 5.1 of the National Instrument.

The CSA note that the inability of mutual funds to disaggregate in their own right should not cause problems in theordinary course. Public mutual funds are prevented by securities legislation from taking positions in excess of 10percent of the outstanding voting or equity securities of an issuer, and so should not generally be in a position to besubject to the early warning requirements or the insider reporting requirements. If a mutual fund does receiveapproval to exceed 10 percent, the terms of the approval could be structured to provide appropriate relief from thoserequirements.

Closed-end investment funds also are not eligible institutional investors.

The CSA are of the view that no special provisions need be included in the National Instrument to deal with portfoliosof segregated funds. The securities in those portfolios may be capable of being disaggregated from those held inother capacities by the relevant insurance company, depending on the ability of the insurance company to satisfy therequirements of section 5.1 of the National Instrument.

Investment Managers with Full Discretionary Authority

Ogilvy suggested that if paragraph (d) was designed to ensure that an investment manager can qualify as an eligibleinstitutional investor only in connection with securities held for the benefit of its managed portfolio accounts, thenparagraph (d) should be amended to clarify this.

The Securities Subcommittee recommended that paragraph (d) be amended to clarify the term "full discretionaryauthority". For instance, if the manager had some accounts where the client retained voting or discretionaryauthority, would the securities in these accounts be excluded? It was suggested that this issue be clarified in acompanion policy.

CSA Response

The CSA agree with the comment. Investment managers with full discretionary authority are eligible institutionalinvestors only in connection with the securities over which they have full discretionary authority. The definition of"eligible institutional investor" has been changed to reflect this.

In addition, the definition of "eligible institutional investor" has been changed by the deletion of the phrase "fulldiscretionary authority" in paragraph (d), and the replacement of that phrase with a reference to "discretion to vote,acquire or dispose of securities without the express consent of the beneficial owner". The CSA have made thischange to clarify what they meant in the 1998 Draft by the phrase "full discretionary authority".

Broker-Dealers

The IDA and the CBA submitted that broker-dealers should be included in the definition of "eligible institutionalinvestors". The IDA submitted that many competitors of the broker-dealer community do fall under this definition,and therefore these competitors can receive relief from many of the same activities undertaken by broker-dealers.The IDA specifically referred to the ability of an eligible institutional investor to qualify for the alternative monthlyreporting system and to obtain aggregation relief under the National Instrument. The IDA argued that the inability ofbroker-dealers to take advantage of these provisions of the National Instrument effectively puts them at acompetitive disadvantage to other eligible institutional investors because broker-dealers would be subject to a highercompliance burden.

The CBA stated that if broker-dealers were not included in the definition of eligible institutional investors, thenNational Instrument 62-101 and Parts 4 and 9 of the National Instrument should be amended to include affiliates orassociates of eligible institutional investors.

CSA Response

The CSA have not included "broker-dealers" as "eligible institutional investors" under the National Instrumentbecause the CSA do not consider broker-dealers generally to be institutional investors.

With respect to the CBA comment, the CSA note that they have not extended the relief provided by NationalInstrument 62-101 and Parts 4 and 9 of the National Instrument to affiliates or associates of eligible institutionalinvestors, as the CSA believe that only institutional investors should have the advantage of the reduced reportingrequirements provided by those provisions. The CSA do not wish to provide competitive advantages toorganizations that happen to include an eligible institutional investor.

U.K. Pension Funds

The CBA also submitted that U.K. pension funds should be included in the definition of "eligible institutionalinvestor".

CSA Response

The CSA have not made the suggested change, as the definition is designed only to include those investors thatcommonly take significant positions in Canadian securities. Individual relief for specific U.K. pension funds shouldbe considered for those funds that do typically take significant interests in Canadian securities.

Definition of "formal bid", "offeror" and "offeror's securities"

Ogilvy commented that these terms are not used in the Securities Act (Quebec) (the "Quebec Act") and suggestedchanges to the definition to make the terms tie appropriately to Quebec Act.

CSA Response

The CSA agree with the comment and have made the recommended changes.

Definition of "investment manager"

Ogilvy commented that the definition of "investment manager" would encompass "portfolio advisers". Ogilvysuggested that, because there was a separate definition of "portfolio adviser", an inference could be read into thedefinition of "investment manager", that portfolio advisers were not meant to be included in that definition. Ogilvysuggested the definition of "investment manager" specifically include portfolio advisers.

CSA Response

The CSA agrees with Ogilvy that the definition of "investment manager" would be wide enough to encompassportfolio advisers. The CSA considers this matter is clear and does not believe that the implication suggested byOgilvy will likely arise, and have not made the suggested change.

Definition of "joint actor"

Ogilvy noted that the definition of "joint actor" was defined by reference to a "person or company". Ogilvy noted thata business unit may comprise only part of a legal entity, and the "joint actor" relationship may exist only with thebusiness unit if security holdings are disaggregated from those of the larger group. Therefore, the use of the phrase"person or company" may technically not apply properly to business units.

Romano also asked if the concept of "joint actors" needs to be extended to deal with different business units of thesame person or company.

CSA Response

The CSA have changed the definition of "joint actor" in the National Instrument by replacing the references in thedefinition from "person or company" to "entity". That definition now refers an "entity acting jointly or in concert withanother entity". The CSA have also amended the definition of "acting jointly or in concert" to ensure that the termapplies to "entities" rather than only persons or companies.

Definition of "securityholding percentage"

Ogilvy commented that the definition should be amended to clarify whether Part 5 has an impact on the calculationsof securityholding percentage. Ogilvy stated that without this reference to Part 5, the definition appears to suggestthat the securityholding percentage must be calculated in relationship to an aggregate group, even if the group ispermitted to disaggregate its holdings under Part 5. RT made a similar comment, noting that it appeared that thereference in the definition to the deemed beneficial ownership provisions of securities legislation appeared to negatethe aggregation relief provided for under Part 5. RT stated that the deeming provisions would lead to aninappropriate result for its financial organization.

The Securities Subcommittee noted that the definition does not refer to "offeror's securities" and, accordingly, it isnot clear whether the definition extends to joint actors.

Romano noted that the definition appears to suggest that it is designed to ensure that all convertible securitiesowned or controlled are to be included. Romano noted that under subsection 90(1) of the Ontario Act, which appliesto the take-over bid and early warning provisions but not the insider reporting or control block provisions, onlysecurities convertible in 60 days or less that are owned are so included.

CSA Response

The CSA note that the definition of "securityholding percentage" is designed to be an abbreviated way of referring tothe percentage of securities of a class owned or controlled by a person or company as determined under applicableprovisions of securities legislation. It is not designed to change in any way how that percentage is determined.

The CSA have amended the definition to state that "securityholding percentage" is determined as required underapplicable securities legislation, and to make reference to the application of any applicable aggregation relief. Thedefinition is not intended to negate the availability of any aggregation relief.

The definition does not explicitly refer to joint actors; whether the securities of a joint actor are to be included in thecalculation of the securityholding percentage of an entity will depend upon the operation of the relevant securitieslegislation that is applicable in the context in which the calculation is being made.

Use of phrase "person or company"

Ogilvy suggested the use of this phrase is confusing in light of the concept of separate business units.

CSA Response

As described above, the CSA have added a definition of "entity" and have replaced references to "a person orcompany" throughout the National Instrument with references to an "entity".

Definition of "underwriting period"

Ogilvy noted that the definition of "underwriting period" does not make allowance for the period during which over-allotment options can be exercised and which, under the current rules, is still 60 days.

CSA Response

The CSA agree with this comment. The definition of "underwriting period" has been amended to ensure that theperiod covered by the definition extends to four business days after the acquisition of any securities acquired by anunderwriter upon the exercise of an over-allotment option.

Section 1.2

Ogilvy stated that the provisions of section 1.2 relating to effective control do not specify whether the level ofownership should be calculated after giving effect to disaggregation relief in Part 5 of the National Instrument.

RT submitted that the 30 percent level proposed in section 1.2 should be changed to 50 percent. RT stated that thedefinition was onerous and unnecessary in that an eligible institutional investor could hold 30 percent of theoutstanding voting shares of an issuer and still not be able to exercise control over the issuer as the votes may notbe exercisable at the same time or on the same issues. RT stated that the potential relief provided by the words "inthe absence of evidence to the contrary" is no real relief at all since it puts an onus of proof on the eligibleinstitutional investor but does not provide for a process by which the eligible institutional investor can made such adeclaration or provide evidence for a resolution.

CSA Response

With respect to Ogilvy's comments, the determination of "effective control" would be made on a disaggregated basisif applicable in the context. The concept of "effective control" is used in sections 4.2 and 9.1 of the NationalInstrument in connection with the eligibility criteria for use of the alternative monthly reporting system and insiderreporting requirement relief, respectively. Both the alternative monthly reporting system and the insider reportingrelief are "applicable provisions" under the National Instrument; therefore aggregation relief is available in thecircumstances outlined in section 5.1 and the interpretation of "effective control" would be made on a disaggregatedlevel by an entity whose position in a reporting issuer was made on a disaggregated basis.

In response to RT's comment, the CSA believe that a 30 percent ownership position would represent effectivecontrol of many reporting issuers, and that this level is the appropriate level at which to define "effective control"under the National Instrument. A 50 percent threshold is too high. The reference to "in the absence of evidence tothe contrary" contained in the definition is based on similar language contained in the definition of "distribution" in thesecurities legislation of several jurisdictions, which the CSA believe has worked adequately.

Part 2 - General Reliance and Reporting Provisions

Section 2.1

The CBA sought clarification that a person or company may rely on the disclosure made by a reporting issuer underNational Instrument 62-102 for all purposes under securities legislation. Romano recommended that section 2.1 beextended to take-over bid, insider reporting and control block provisions.

IFIC stated that section 2.1 allows reliance provided on either the information disclosed under National Instrument62-102 or in a more recent material change, so long as the person or company does not know that the information isinaccurate or has changed. IFIC noted that it is not apparent from this provision what information such an investorshould rely upon if he, she or it does know that the information is inaccurate or has changed. IFIC suggested thatthe subsection be clarified to indicate that, in those circumstances, the person or company may rely uponinformation received from the issuer, and that the issuer should be required to provide this information on request.

IFIC also noted that material change reports required under securities legislation are not currently required to containinformation as detailed as that required by section 2.1. IFIC recommended that the CSA require that materialchange reports include the same information as prescribed in section 2.1

CSA Response

The CSA have continued to restrict the formal application of section 2.1 to early warning and alternative monthlyreporting obligations.

With respect to IFIC's comment, the CSA believe that a person or company that is aware that information reportedby a reporting issuer in a material change report or under section 2.1 of National Instrument 62-102 is incorrectshould use the best information available to it.

The CSA do not intend to change the form of material change reports at this time.

Part 3 - Reporting Requirements under the Early Warning Requirements

Section 3.1

Romano noted that subsection 3.1(1) refers to the contents of the news release, but not prescribe the contents of therequired report.

CSA Response

The report is required by securities legislation to contain the same information as is contained in the press release.As the contents of the news release are therefore statutorily prescribed, that issue is not dealt with in the NationalInstrument.

Part 4 - Alternative Monthly Reporting System

Reporting Threshold

A number of commenters argued in favour of harmonizing the reporting threshold required under section 4.5 of the1998 Draft with the comparable reporting threshold in the U.S.

IFIC stated that the 5 percent increment as originally proposed in the Ontario Draft Rule is the favoured approach, asit follows the U.S. reporting model and would allow eligible institutional investors to conform their Canadian and U.S.reporting requirements and simplify their compliance.

The CBA submitted that the proposed fixed 2.5 percent threshold creates an unjustified regulatory burden forCanadian issuers with cross-border operations as well as an additional barrier to foreign institutional investment inCanadian equities. The CBA stated that a common threshold with the U.S. makes sense, and recommended the"flexible 5%" threshold, in which reporting requirements are based on changes from previously reported positions,rather than in respect of fixed thresholds.

Romano stated that the 2.5 percent threshold will require both Canadian and non-Canadian institutional investors toengage in systems modifications which could be complex and expensive. Romano also stated that a fixed threshold,rather than a requirement to report changes from the previously reported position, is not consistent with theapproach taken under the early warning provisions of Ontario securities law. Romano stated that the benefits fromthis approach were unclear, and that this approach could potentially disincline non-Canadians from investing inCanadian equities, to the detriment of Canadian issuers, investors, intermediaries and the Canadian capital marketsgenerally. Romano suggested that if the CSA did not wish to adopt a position consistent with the U.S. position, theCSA should consider an exemption for non-Canadians who comply in accordance with U.S. rules.

RT also urged a return to the 5 percent threshold, based on changes from the previously reported position, of theOntario Draft Rule. RT stated that there were few significant additional benefits from the 2.5 percent threshold, butsubstantial extra work for reporters.

CSA Response

The CSA have decided to continue with the fixed 2.5 percent threshold. The CSA are of the view that a 5 percentthreshold does not provide frequent enough reports to keep the market informed of significant securities positions.The CSA also believe that the 2.5 percent threshold is suitable for a smaller securities market in Canada.

Section 4.1

The CBA submitted that affiliates or associates of an eligible institutional investor should qualify for the alternativemonthly reporting system.

Ogilvy also submitted that the availability of the alternative monthly reporting system be extended to associates andaffiliates and segregated business units of eligible institutional investors. Ogilvy argued that the aggregation reliefunder Part 5 was available to associates and affiliates of eligible institutional investors.

CSA Response

On the CBA's comment, the CSA remain of the view that the alternative monthly reporting system should beavailable only to eligible institutional investors, and have not extended the availability of the system to affiliates orassociates of those entities. The CSA note that the availability of aggregation relief should relieve many financialorganizations of reporting obligations.

Section 4.3

Romano argued that the reference to "three days" in paragraph 4.3(1)(b) should be changed to "two business days".

Romano also believed that there is a discrepancy in subsection 4.3(4) between the use of the term "owned" and theuse of the definition "securityholding percentage", which includes both ownership and control.

The CBA believes that paragraph 1(b) of Appendix F is inappropriate. Appendix F contains the requirements for thenews release and report required to be made when an eligible institutional investor ceases to use the alternativemonthly reporting system. The CBA thought that it is unnecessary to require disclosure of reasons.

Ogilvy questioned the need to require the issuance and filing of a news release where the eligible institutionalinvestor no longer intends to use Part 4 but is not otherwise disqualified. Ogilvy stated that the issue of a newsrelease in these cases appears to confer an unwarranted degree of significance to the decision not to use thealternative monthly reporting system.

CSA Response

The CSA agree with Romano's first comment and have changed the reference to "two business days". The CSA donot agree with his second comment and have not made the suggested change.

The CBA's comment refers to a requirement that a reporter disclose the reason that it is ceasing to use thealternative monthly reporting system. The CSA believe that this information can be important to the market, andhave not made the deletion suggested by the CBA. Similarly, the CSA have not deleted the requirement for a pressrelease when the reporter ceases to use the alternative monthly reporting system. The CSA believe that thisinformation can also be important to the market, and should be disclosed.

Section 4.4

Ogilvy stated that the restrictions on acquisitions contained in section 4.4 should run from the date of issuance of thenews release rather than the date of the filing, since it is the issue of the news release that begins the process ofdissemination of that information in the market. Ogilvy also stated that the ten day period seems excessively longand recommended a delay of three to five days. Ogilvy stated that it understood that the selection of the ten dayperiod was largely inspired by corresponding U.S. rules, but suggested that the differences in size and diversitybetween the U.S. and Canadian markets should amply justify the selection of a reduced delay in the context of theCanadian market.

Romano recommended that section 4.4 open with a reference to "an eligible institutional investor" rather than aperson or company, and suggested that the section should apply only to the extent one is in a ten percent or greaterposition.

CSA Response

The CSA have not made the change suggested by Ogilvy. The CSA believe that the date of the filing of a newsrelease is a easily identifiable event that would provide more certainty to the market than the date of the issue of apress release, which may not be picked up and published by any media. The CSA also note that basing therestriction on the time of filing should have the advantage of creating an incentive for the speedy filing of newsreleases by relevant entities.

The CSA have sympathy for the view that the 10 day period is long, but do not propose to change it at this time.This approach is consistent with the U.S. approach on this matter.

The CSA agree with Romano's comment and have amended section 4.4 to clarify that it is applicable only if thesecurityholding percentage of the entity is 10 percent or more.

Section 4.5

IFIC requested clarification of the impact of section 4.5 in the case of "grandfathered" holdings, in which an eligibleinstitutional investor has not been required to report, despite holding in excess of 10 percent. Also, IFIC requestedclarification on reporting requirements in the case of holdings in excess of 10 percent of a private company where aprivate company goes public.

Romano asked if the Rules should "grandfather" reports voluntarily filed prior to the Rule coming into force. Romanoalso suggested that paragraphs (b), (c) and (d) of section 4.5 should clarify that the increase or decrease is from themost recently filed report.

Ogilvy suggested a technical drafting change to the lead-in language of section 4.5.

CSA Response

The CSA believe that the only "grandfathering" that might be applicable in connection with the alternative monthlyreporting system might relate to persons or companies that had obtained orders from one or more of the Canadiansecurities regulatory authorities. Whether "grandfathering" was available in connection with the National Instrumentwould depend on the terms of the orders. No "grandfathering" provisions will be included in the National instrument.

In the case of a private company going public, the CSA believe that paragraph 4.5(b) of the National Instrumentwould be applicable. In the month that the issuer became public, the securityholding percentage of an eligibleinstitutional holder would increase to more than 10 percent of a reporting issuer, thereby triggering the filingrequirement within 10 days after the end of the month.

The CSA have not made the change suggested by Romano relating to paragraphs (b), (c) and (d) of section 4.5.The CSA believe the language of those paragraphs to be clear.

The CSA also have not changed section 4.5 to incorporate Ogilvy's suggested language.

Section 4.7

Romano suggested that paragraph 4.7(2)(a) should expressly require the name of the reporting issuer andcommented that, "as there is no joint actor disclosure required in subsection 4.7(2), silence presumably suffices forpurposes of paragraph 4.8(b) where section 4.7 is concerned".

CSA Response

The CSA have changed section 4.7 to clarify the need to include the name of the relevant reporting issuer. The CSAnote that, with respect to Romano's second comment, silence would not suffice. If a joint actor was under anobligation to file under section 4.5(d), then a filing by another person or company would not relieve the joint actorfrom the filing obligation by virtue of section 4.8 unless "the report discloses the information concerning the jointactor" as required by paragraph 4.8(b).

Part 5 - Aggregation Relief

Section 5.1

The CBA commented that the provisions in this section are a significant improvement over past drafts of the Ruleand that it appreciated the fact that the CSA considered and responded to submissions from industry participants inthis regard. The CBA strongly urged all commissions to adopt this section of the National Instrument withoutchange. In this regard, the CBA noted that it disagreed with the proposal of the CVMQ that relief should not beautomatic.

Ogilvy commented that clarification was needed as to how the definition "applicable definitions" tied into theaggregation relief here. Ogilvy wondered whether the intent was to allow "segregation" for purposes of theapplicable definitions quite apart from the applicable definitions. Ogilvy also provided a number of specificcomments on other sections of the National Instrument in which it raised the issue of how aggregation relief wouldapply to those sections. The Securities Subcommittee also suggested cross-references to the aggregation reliefsection throughout the National Instrument in order to clarify how aggregation relief applies to various otherprovisions.

Romano made a number of technical drafting comments relating to sections 5.1, 5.1(d) and 5.3. He also suggestedthat the introductory words in section 5.1 should refer to convertible and similar securities, as in section 5.2.

In addition to the foregoing, a number of comments were received on the various conditions to aggregation reliefcontained in paragraphs (a) through (f) of section 5.1.

SunLife recommended that paragraph 5.1(a) be revised to provide that investment decisions must be made in allcircumstances by the business unit or a person or company retained by the business unit to make such decisions, inorder to take into account the circumstances in which a business unit delegates investment decisions to a third party.

SunLife also recommended that paragraph 5.1(c) be amended to clarify that the aggregation relief is intended to beunavailable if a business unit, person or company participates in making investment decisions for two business unitsregarding the same securities. SunLife provided some drafting suggestions to clarify this point.

IFIC commented that paragraph 5.1(c) establishes "information barriers" that must be established and observed byseparate business units of eligible institutional investors. IFIC stated that it was concerned that the requirementsmay be a little too inflexible. IFIC stated that isolated instances of crossing the "information barrier" should notpreclude reliance on the aggregation relief, and cited support in the United States for this proposition in the SEC'srule pertaining to Beneficial Ownership Reporting Requirement. The SEC stated that isolated instances of crossingthe "information barrier" with respect to a particular security should not warrant aggregation of holdings of thatparticular security.

SunLife suggested that paragraph 5.1(d) be reworded to require that an eligible institutional investor have noreasonable grounds for believing that a business unit does not comply with the applicable provisions and securitieslegislation related to the applicable definitions, rather than for having positive grounds for believing it does comply.The Securities Subcommittee also commented that paragraph 5.1(d) should be amended to be a negative test (i.e.no grounds for believing that a business unit does not comply). The Securities Subcommittee also asked forguidance as to what actions would constitute "reasonable grounds" in this context.

RT commented that paragraph 5.1(d) was too onerous in that it would require eligible institutional investors to makeinquiries of other business units or affiliates as to their practices of reporting relevant holdings. SunLife said that thisrequirement was onerous and unnecessary and would call for the establishment of a centralized compliance areathat would cross business lines that have been deliberately set up to enable business units to operate independentlyto minimize potential conflicts of interest. SunLife argued that this structure is not in the best interests of clients froma corporate governance perspective.

RT suggested that the paragraph 5.1(e), which requires an eligible institutional investor or affiliate or associate totake reasonable steps to ensure that each other business unit complies with the requirement of Part 5, has the effectof breaking down well-established firewalls by appearing to call for the creation of a centralized compliance function.

CSA Response

The CSA have adopted a number of Romano's technical drafting suggestions.

With respect to the specific comments on the conditions to aggregation relief, the CSA have made no materialchanges.

On SunLife's comment on paragraph 5.1(a), the CSA have made no change. The CSA consider it important that theinvestment decisions be made by the business unit, rather than an entity retained by a business unit, in order thatthese aggregation relief provisions work properly.

The CSA have made the change suggested by SunLife in connection with paragraph 5.1(c).

The CSA have made no changes to paragraphs 5.1(d) and (e). The CSA want to ensure that aggregation relief isnot used unless the entity intending to use it believes, and has taken the positive steps to ensure, that otherbusiness units comply with the applicable law in connection with the securities owned or controlled by them. Thecompliance steps and procedures to be implemented are a matter of business judgment of the relevant organization.

Section 5.2

A number of commenters sought clarification of the relationship between section 5.2 and section 5.1. The CBAsuggested that the purpose of the section needs to be clarified so that it is clear that the section providessupplemental aggregation relief to investment funds and does not impose additional conditions for the primarybusiness unit relief in section 5.1. Ogilvy submitted that an investment fund not qualifying for relief under section 5.2could, nevertheless, constitute a separate business unit that could qualify for relief under section 5.1. Ogilvy statesthat the current language of section 5.2 is not clear as to whether alternative reliance on section 5.1 would bepermissible.

Ogilvy also noted that paragraph (f) of section 5.2 requires the portfolio advisor not be controlled by the eligibleinstitutional investor or an affiliate or an associate thereof. Ogilvy noted the possibility that the portfolio advisor becontrolled through a business of the eligible institutional investor which has been segregated under section 5.1 andstated that in their view such a control should not disqualify from aggregation relief under section 5.2.

Ogilvy suggested that a definition of "private mutual fund" should be added to accommodate Quebec as thisdefinition does not currently exist under the Securities Act (Quebec).

The CBA and SunLife recommended that the term "investment funds" be defined. SunLife suggested that thedefinition would include public mutual funds, segregated funds and pooled funds.

RT argued that paragraph 5.2(c) should be deleted. RT argued that the requirement that the identity of a portfolioadvisor be disclosed in offering materials is unnecessary, and that it was appropriate that aggregation relief begranted in the case of many discretionary investment managers who make private arrangements with their clientsand do not produce offering materials.

SunLife also recommended that paragraphs (d) and (f) be amended to remove the prohibition against an affiliatemanaging the relevant portfolio. SunLife urged that aggregation relief be available to the eligible institutionalinvestor, regardless of whether the portfolio advisor is an affiliate. SunLife argued that the key concept should bethat investment decisions are made independently of the investment manager, not that the sub-adviser is unaffiliatedwith the investment manager. The Securities Subcommittee also submitted that paragraph 5.2(f) should be deletedon the basis that a policy objective of aggregation relief should be to ensure that decision making is madeindependently, and that it is unnecessary to be concerned over whether a portfolio advisor is affiliated with its client.The CBA made a similar comment.

The CBA submitted that paragraph 5.2(f) is too restrictive.

IFIC urged that mutual funds be treated that same as other eligible institutional investors under section 5.1, and thatsection 5.2 is accordingly unnecessary.

Romano asked, in reference to the requirements of paragraphs 5.2(b) and (d), "how can control be exercised asopposed to shared"? Romano also asked, in connection with paragraph 5.2(c), whether there should be arequirement to make public the fact the identity of a portfolio advisor.

SunLife and the Securities Subcommittee also made a number of technical drafting suggestions.

CSA Response

The CSA believe that it is clear that section 5.2 is a separate provision from section 5.1, and do not believe that it isnecessary to clarify the relationship between the two sections. The CSA do not agree with Ogilvy's comment that aninvestment fund could qualify as a separate business unit under section 5.1; an investment fund is not an eligibleinstitutional investor or an affiliate or associate of an eligible institutional investor and would be unable to use section5.1.

The CSA have continued with the requirement that a portfolio adviser be not controlled or control the eligibleinstitutional investor, or affiliates or associates of the eligible institutional investor; the CSA intend that thisaggregation relief be available only in circumstances in which the investment management of the investment fund isdelegated to an arm's length portfolio manager.

The CSA do not believe it necessary at this time to define "investment funds".

The CSA have changed paragraph 5.2(c) in response to the comment from RT. That paragraph now provides thatthe portfolio adviser must be identified to the relevant investor in a document, whether in a prospectus, offeringdocument or otherwise.

The CSA note that the reference to the "exercise" as opposed to the "sharing" of control refers to the distinctionbetween a person that is itself exercising control, as opposed to a circumstance in which that person has partiallydelegated control or is sharing control with another person.

The CSA have also made a number of technical drafting changes suggested by some of the commenters.

Section 5.3

Ogilvy requested clarification as to the nature of the details of the records required to be held under subsection5.3(2). The Securities Subcommittee made a similar comment.

CSA Response

The CSA believe that what records are kept would properly be a business decision of the relevant entity.Presumably, the records kept should be sufficient to establish the legitimacy of the use of section 5.1 or 5.2, asapplicable.

Section 5.4

Ogilvy argued that section 5.4 should refer not only to the eligible institutional investor, but also to its affiliates andassociates.

Romano asked if section 5.4 should include the words "pursuant to Part 9" after "required".

CSA Response

The CSA agree with Ogilvy's comment and have made the suggested change.

The CSA have not made a change in connection with Romano's comment.

Part 6 - Issuer Actions

Section 6.1

Ogilvy noted that the benefit of the exemption in subsection (2) of section 6.1 only applies to early warningrequirements and not to reports under Part 4.

Romano suggested that clarification of the phrase "affect or are offered to all holders" was unclear in the context ofredemptions. Romano wondered if that phrase would include redemption of securities by lot or targetedredemptions.

IFIC suggested that subsections (1) and (2) of section 6.1 be combined to provide that the relief is provided for anyincrease or decrease in a securityholding percentage "that arises without any action taken by the person orcompany". IFIC suggested this approach to ensure that all issuer actions that affect a securityholding percentage ofa person or company be caught by the section.

Romano also noted that subsection 6.1(3) suggests that the relief may disappear in the middle of a month andsought clarification on how this would affect an alternative monthly reporter. Romano also suggested thatsubsection 6.1(4) was redundant.

CSA Response

The CSA have amended subsection 6.1(2) to include an exemption from the reporting requirements of Part 4.

The CSA have made no changes in respect of Romano's comments. Subsection 6.1(1) is intended to apply only toredemptions, retractions or repurchases affecting or offered to all securityholders of the relevant class. The CSA donot intend other types of more limited redemptions to trigger the relief offered by this provision. However, section 6.1has been amended to apply to transactions effected under National Instrument 32-101 Small Securityholder Sellingand Purchase Arrangements.

On Romano's comment on subsection 6.1(3), the CSA note that the ordinary rules will apply. For a person orcompany reporting under the early warning requirements, there may be an immediate obligation to disclose; forthose reporting under the alternative monthly reporting system, the obligation to disclose would arise 10 days afterthe end of the month in which the relevant transaction occurred.

Part 7 - Underwriting Exemptions

Section 7.1

The CBA argued that the use of the term "owned" in section 7.1 in respect of securities held by an underwriter duringan underwriting period may be problematic in respect of certain underwritings, as the underwriter may not "own"securities until the end of the period. Romano made the same point.

The CBA and Romano also questioned the need for an underwriter to issue a press release in order to be able touse the relief. The CBA argued that the issuers' press release should be sufficient.

Romano argued that the relief contained in section 7.1 should extend to the underlying securities in case ofconvertibles.

Romano also inquired as to the steps to be followed by an underwriter after the underwriting period has expired if itowns a greater than 10% position. Would the underwriter be required to comply immediately or could it wait untilmonth-end?

CSA Response

The CSA have not deleted the word "owned". If an underwriter does not own securities during an underwritingperiod, it would seem that relief from the early warning and alternative monthly reporting requirements would not benecessary. The CSA have amended paragraph 7.1(b) to refer to a press release of either the issuer or theunderwriter.

The CSA have also provided that the relief contained in section 7.1 will apply to the underlying securities ofunderwritten convertible securities.

The CSA notes that underwriters generally will not be eligible institutional investors, and will not be able to use thealternative monthly reporting system. If an underwriter held a 10 percent position in an issuer at the end of anunderwriting period, then it would be required to report under the early warning requirements.

Part 8 - Relief for Pledgees

Section 8.1

The CBA expressed concern with the phrase "legally entitled to dispose". The CBA stated that this phrase causedconcern because under all standard form pledge agreements, the lender acquires the legal right to realize thecollateral upon the default of the borrower at the time the agreement is executed. Once the agreement is executed,a lender is "legally entitled to dispose" of the collateral conditional upon the default of the borrower. The CBAsubmitted that the trigger point for the relief should be related to the actual exercise of voting or investment powerover the pledged securities. Alternatively, the CBA suggested that the trigger point for the relief could be related to adecision to exercise voting or investment power over the securities.

The CBA also discussed concerns relating to the integration of section 8.1 relief with aggregation relief under theNational Instrument. The CBA stated that through realizations, bank branches acquire voting and investment powerover securities. At this point, the aggregation relief in section 8.1 will terminate. Depending on the relevantcircumstances, a branch may dispose of the securities, retain actual control of the realized securities or move thesecurities to another business unit within a bank for actual control. The CBA submitted that where a branch retainsactual control and the conditions in section 5.1 are satisfied, the bank should be relieved from aggregating thesecurityholdings of the branch with its other securityholdings. The CBA suggested this issue could be clarified byincluding a specific reference to branches (or portions of branches) in the definition of "business unit".

The IDA requested clarification of how Part 8 would be applied in relation to shares held in margin accounts, whetheror not the margin loans have crystallized. In other words, by the mere fact that "a broker/dealer has pledged theirsecurities as margin loans", must they aggregate all margin loans that are above the de minimis accounts providedfor in section 8.2?

The IDA also submitted that relief should be granted to IDA members from the applicable provisions and theapplicable definitions in situations where a broker/dealer calls in a margin loan and sells its security. When a marginloan is called in, a broker/dealer seldom takes such securities into inventory, but instead sells usually the securitiesimmediately into the market, and therefore only "owns" the securities for as little as a few minutes. To requirereporting for such holdings would impose an excessive compliance burden and may be misleading to the market.

Ogilvy also inquired why the relief provided to financial institutions under Part 8 was not also available to brokersholding security interests in securities.

The Securities Subcommittee stated that it was unclear under section 8.1 whether the relief for pledgees applieseven if the pledgees have and exercised the right to vote the pledged securities. The Securities Subcommitteesuggested that consideration be given to expand subsection 8.1(2) to include circumstances where the pledgee hasand exercises the right to vote the securities prior to being legally entitled to dispose of the securities.

Romano also stated that relief should extend until a decision to act has been made by a pledgee. Romano statedthat otherwise, there would be cross-border inconsistencies and unnecessary costs.

CSA Response

The CSA have amended Part 8 to extend the relief to any person or company that, in effect, takes security on loansas part of its ordinary business.

In response to the CBA's point on the trigger point for the end of the relief provided by subsection 8.1(1), the CSAhave not changed the basic approach of subsection 8.1(2). A pledgee's relief should end when it is legally entitled todispose of the securities in question; that is, when it has taken all necessary steps under both the relevantagreements and applicable statutes to be able to sell. The CSA have amended subsection 8.1(2) by replacing theword "if" with the words "at any time that" for greater clarity.

Section 8.2

The Securities Subcommittee stated that the requirement in paragraph 8.2(b) that the pledged securities not bevoting or equity securities is somewhat mystifying, as, if the pledged securities are not voting or equity securities, thepledgee is not subject to the reporting requirements. Romano raised the same point.

The CBA commented that the de minimis relief in section 8.2 was wrongly structured. The CBA argued that deminimis relief is not required "for securities that are controlled by a financial institution as a pledgee"; during thosetimes, the pledged relief in section 8.1 should provide the necessary aggregation relief. Rather, the CBA argued thatthe de minimis relief is important for financial institutions in the "realization mode". At this point, the financialinstitution acquires actual control of the securities and is not a "pledgee" within the meaning of the NationalInstrument. The CBA also raised the issue as to why the relief extended only to non-voting or non-equity securities.

CSA Response

The CSA have amended section 8.2 to clarify its intent. Section 8.2 now provides that the de minimis relief isavailable if the principal amount of debt is less than $2,000,000 unless the pledged securities, and securities intowhich they are convertible, exercisable or exchangeable, constitute 10 percent or more of a class of voting or equitysecurities.

Part 9 - Insider Reporting Exemption

Section 9.1

The CBA and Ogilvy suggested that affiliates or associates of eligible institutional investors should qualify for theinsider reporting exemption.

IFIC raised concerns with the conditions to relief under subsection 9.1(1). IFIC urged the deletion of paragraphs (b)and (c) on the basis that if an eligible institutional investor has or receives knowledge of any material fact or materialchange with respect to the reporting issuer that has not been generally disclosed, that knowledge should notautomatically characterize the investor as being not "passive".

The CBA objected to the requirement contained in section 9.1 that the eligible institutional investor must maintaincontinuous insider reporting records. The CBA suggested that the existing regulatory burden is associated insubstantial part with the need to keep records that enable a filer to prepare the reports, not with respect to the filingof reports directly.

IFIC urged the deletion of paragraphs 9.1.(1)(b) and (c) on the basis that failure to comply with those paragraphsshould not disqualify an eligible institutional investor from being considered "passive". IFIC made a similar point withrespect to the corresponding provisions of subsection 2.1(1) of National Instrument 62-101.

The CBA urged that paragraphs (d) and (e) of subsection 9.1(1) be removed on the basis that they were overlyrestrictive. The CBA stated that the restriction contained in paragraph 9.1(c), that an eligible institutional investor notpossess inside information, should be sufficient to protect the market from abuse.

RT also objected to paragraph 9.1(1)(d). RT argued that in the ordinary course of business, it is possible for aninvestment manager to be provided with such factual information about issuers that is not generally disclosed;however, this should not disqualify an investment manager from being considered "passive". RT also argued that itis unfair to require an investment adviser to determine whether information it obtains about an issuer is material.

Romano referred to paragraph 9.1(1)(a), which refers to a "current" securityholding position. Because of ambiguitiesas to the meaning of "current", Romano suggested that the conditions in paragraph (a) simply be that the eligibleinstitutional investor has filed all required reports.

Romano commented that paragraph 9.1(1)(e) should facilitate the nomination of unaffiliated and unrelatedindependent directors, which may well benefit all shareholders. Romano queried as to how long subsection 9.1(2)would require the maintenance of records.

Romano argued that subsection 9.1(3) should include the words "an insider of a reporting issuer and that is" beforethe word "filing", to clarify that it only applies to 10% and plus situations.

Romano suggested that in paragraph 9.1(3)(b), one may not know the date of the issuer's action to determinewhether one has taken any action since that date.

CSA Response

The conditions to the insider reporting provided by section 9.1 have not been materially changed by the CSA inresponse to the comments. The CSA consider each such condition important to the relief provided by the section.The CSA note that this relief is designed only for eligible institutional investors that do not have, and are not in aposition to have, inside information concerning the subject reporting issuer in the ordinary course of its activities.The exemptions provided by this Instrument are only for eligible institutional investors that do not have a closerelationship with a subject issuer.

With respect to the comment concerning the maintenance of records, the CSA believe that ordinary principles ofrecord retention should apply in these circumstances.

Section 11.1

Romano inquired whether any remedy for an appeal to the Ontario Securities Commission of a director's decisionunder subsection 11.1(1) is possible, pending the proposed changes to Section 8(1) of the Act. If not, is itappropriate to limit relief to the director?

CSA Response

The Ontario Commission notes that subsection 8(1) referred to in Romano's comment is a reference to the proposed"Red Tape Amendment" considered by the Ontario legislature prior to dissolution of the legislature before the 1999provincial election. Subsection 8(1) would have provided the Commission with a general power to review anydecision made by the Director. The Ontario Commission notes that, even without the proposed amendment tosubsection 8(1), subsection 8(2) of the Ontario Act allows "any person or company directly affected by the decisionof the Director" to request and be entitled to a hearing before the Commission in connection with a decision of theDirector. Subsection 8(3) then provides the Commission with the power to "by order confirm the decision underreview or make such other decision as the Commission considers proper".

Appendices E and F

Romano argued that paragraph 1(a) should expressly require the name of the reporting issuer. In paragraph 1(d), ifthere is shared control, is it required to be disclosed under (i), (ii) or neither, in light of the wording in (iii)?

CSA Response

Paragraph 1(a) has been changed to explicitly require disclosure of the name of the reporting issuer. No changesare necessary to paragraph 1(d).

Appendix F

Romano stated that paragraph 1(b) seems unnecessary and likely to lead to potentially serious premature disclosureor else a statement that the person no longer intends to rely on the relief without more. Paragraph 1(c) shouldexpressly require the name of the reporting issuer. Paragraph 1(i) is not appropriate here.

CSA Response

Paragraph 1(c) has been amended to explicitly require disclosure of the name of the reporting issuer. No otherchanges are necessary.

TIPs/HIPs

Romano inquired whether it was possible to extend HIPs and TIPs early warning reporting relief (as per July 31,1995 and March 12, 1996 OSC Orders) to the alternative monthly reporting system.

CSA Response

The CSA are not providing that relief at the present time.

 

NATIONAL INSTRUMENT 62-103
THE EARLY WARNING SYSTEM AND RELATED TAKE-OVER BID AND
INSIDER REPORTING ISSUES
TABLE OF CONTENTS

PART TITLE

PART 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions
1.2 Deemed Effective ControlPART 2 GENERAL RELIANCE AND REPORTING PROVISIONS
2.1 Reliance on Reported Outstanding Shares
2.2 Copies of News Release and Report
2.3 No Duplication of News Releases or Reports

PART 3 EARLY WARNING REQUIREMENTS
3.1 Contents of News Releases and Reports
3.2 Filing Relief for Joint Actors
3.3 Exemption from Early Warning Requirements for Mutual Fund SecuritiesPART 4 ALTERNATIVE MONTHLY REPORTING SYSTEM

4.1 Exemption from the Early Warning Requirements
4.2 Disqualification
4.3 Reporting and Filing Requirements
4.4 Restrictions on Acquisitions
4.5 Filing Obligations under this Part
4.6 Change Reports
4.7 Contents of Reports
4.8 Exemptions

PART 5 AGGREGATION RELIEF
5.1 Separate Business Units
5.2 Securities Held by an Investment Fund
5.3 Reporting and Record Keeping
5.4 No Requirement to Satisfy Insider Reporting Requirement

PART 6 ISSUER ACTIONS
6.1 Issuer Actions

PART 7 UNDERWRITING EXEMPTION
7.1 Underwriting ExemptionPART 8 RELIEF FOR PLEDGEES

8.1 Relief for Pledgees
8.2 Further Relief for de minimis Pledgees
8.3 Corresponding Insider Reporting Relief

PART 9 INSIDER REPORTING EXEMPTION; EARLY WARNING DECREASE REPORTS
9.1 Insider Reporting Exemption; Early Warning Decrease Reports

PART 10 MORATORIUM RELIEF
10.1 Moratorium Relief

PART 11 EXEMPTIONS
11.1 Exemptions

PART 12 EFFECTIVE DATE
12.1 Effective Date

APPENDIX A CONTROL BLOCK DISTRIBUTION DEFINITION

APPENDIX B EARLY WARNING REQUIREMENTS

APPENDIX C MORATORIUM PROVISIONS

APPENDIX D SECURITY OWNERSHIP AND CONTROL PROVISIONS

APPENDIX E REQUIRED DISCLOSURE IN NEWS RELEASE FILED UNDER EARLY WARNINGREQUIREMENTS

APPENDIX F REQUIRED DISCLOSURE IN NEWS RELEASE AND REPORT FILED BY AN ELIGIBLEINSTITUTIONAL INVESTOR UNDER SECTION 4.3

APPENDIX G REQUIRED DISCLOSURE IN REPORT FILED BY AN ELIGIBLE INSTITUTIONAL INVESTORUNDER PART 4

NATIONAL INSTRUMENT 62-103

THE EARLY WARNING SYSTEM AND RELATED TAKE-OVER BID AND

INSIDER REPORTING ISSUES

PART 1 DEFINITIONS AND INTERPRETATION

1.1 Definitions

(1) In this Instrument

"acquisition announcement provisions" means the requirement in securities legislation for an offerorto issue a news release if, during a formal bid for voting or equity securities of a reporting issuer byan entity other than the offeror, the offeror acquires ownership of, or control over, securities of theclass subject to the bid that, together with the offeror's securities of the class, constitute an amountequal to or greater than the amount specified in securities legislation;

"acting jointly or in concert" has the meaning ascribed to that phrase in securities legislation, and,when used in connection with an entity, has the meaning ascribed in securities legislation as if theterm "entity" replaced the term "person or company" or similar term;

"applicable definitions" means

(a) the definitions of "take-over bid" and "offeror's securities" in the take-over provisions, and

(b) the control block distribution definition;

"applicable provisions" means

(a) the early warning requirements,

(b) Part 4,

(c) the moratorium provisions,

(d) the insider reporting requirement,

(e) the acquisition announcement provisions, and

(f) section 2.1 of National Instrument 62-101 Control Block Distribution Issues, and

(g) in Quebec, Policy Statement Q-12 Secondary Distribution through Solicitations under theSecurities Act (Quebec);

"business unit" means a legal entity or part of a legal entity, or a combination of legal entities or partsof legal entities, that engage in a distinct business or investment activity separately from otherbusinesses and investment activities of the relevant entities;

"class" means, in relation to a security, a class or series of a class of the security;

"control" means, for a security

(a) when used in connection with the insider reporting requirements, the take-over bidrequirements and related definitions and the early warning requirements, the power toexercise control or direction over the security, or similar term or expression used in securitieslegislation; and

(b) when used in connection with the control block distribution definition, holding the security, orsimilar term or expression used in securities legislation;

"control block distribution definition" means the provisions of securities legislation listed in AppendixA;

"early warning requirements" means the provisions of securities legislation listed in Appendix B;

"effective control" means, for a reporting issuer, the control in fact of the reporting issuer by an entitythrough the ownership of, or control over, voting securities of the reporting issuer, other thansecurities held by way of security only;

"eligible institutional investor" means

(a) a financial institution,

(b) a pension fund that is regulated by either the Office of the Superintendent of FinancialInstitutions (Canada), a pension commission of a jurisdiction, or a similar regulatory authority,

(c) a mutual fund that is not a reporting issuer,

(d) an investment manager in relation to securities over which it exercises discretion to vote,acquire or dispose without the express consent of the beneficial owner, subject to applicablelegal requirements, general investment policies, guidelines, objectives or restrictions, or

(e) an entity referred to in clauses (D) or (F) of Rule 13d-1(b)(1)(ii) under the 1934 Act;

"entity" means a person or company or a business unit;

"equity security" has the meaning ascribed to that term in securities legislation;

"financial institution" means

(a) a Canadian financial institution,

(b) an entity that is engaged in financial services activities and that is supervised and regulatedunder the banking, insurance, trust or similar laws of, and incorporated in, the United States ofAmerica or Japan, or

(c) a credit institution, within the meaning of European Union Directive 77/780/EEC, whose homemember state for purposes of that European Union Directive is France, Germany, Italy or theUnited Kingdom of Great Britain and Northern Ireland;

"formal bid"

(a) has the meaning ascribed to that term in securities legislation, and

(b) in Quebec only, means a take-over bid or an issuer bid made in accordance with Chapter III ofTitle IV, or section 119, of the Securities Act (Quebec);

"investment manager" means an entity that

(a) either

(i) is registered or licensed to provide investment counselling, portfolio management orsimilar advisory services in respect of securities, or is exempt from the requirement tobe so registered or licensed, under the securities laws of a jurisdiction or of Japan orunder the Investment Advisers Act of 1940 of the United States of America, asamended, or

(ii) is subject to European Union Directive 93/22 on investment services in the securitiesfield, and provides the portfolio management services referred to in Section A(3) of theAnnex to that Directive, and whose home member state is France, Germany, Italy orthe United Kingdom of Great Britain and Northern Ireland, and

(b) provides the services referred to in paragraph (a) for valuable consideration under acontractual arrangement;

"joint actor" means, in relation to an entity and a security, another entity acting jointly or in concertwith the entity in connection with the ownership of, or control over, the security;

"moratorium provisions" means the provisions of securities legislation listed in Appendix C;

"news release" includes a press release;

"offeror"

(a) has the meaning ascribed to that term in securities legislation, and

(b) in Quebec only, means a person or company making a take-over bid or issuer bid or anacquisition subject to sections 147.11, 147.12, 147.15 and 147.16 of the Securities Act(Quebec);

 

"offeror's securities"

(a) has the meaning ascribed to that term in securities legislation, and

(b) in Quebec only, means the securities included in the calculation of an offeror's interest undersections 111 and 112 of the Securities Act (Quebec);

"ownership" means, in relation to a security, the beneficial ownership of the security, and "owns","owned" and similar words have corresponding meanings;

"pledgee" includes a holder of any type of security interest;

"portfolio adviser" means an entity that provides investment advice or portfolio management servicesto, or for, an investment fund;

"private mutual fund"

(a) has the meaning ascribed to that term in securities legislation; and

(b) in Quebec only, means a mutual fund that is

(i) operated as an investment club where the conditions in subsection 3(12) of theSecurities Act (Quebec) are met; or

(ii) referred to in subsection 3(11) of the Securities Act (Quebec).

"securityholding percentage" means, in relation to an entity and a class of securities, the percentageof the outstanding securities of the class owned, together with the percentage controlled by theentity, determined in accordance with the provisions of applicable securities legislation listed inAppendix D and after application of any aggregation relief available under Part 5 that is relied on bythe entity;

"take-over provisions" means the provisions in securities legislation that regulate take-over bids andissuer bids; and

"underwriting period" means, for an entity acting as an underwriter of securities, the periodcommencing from the date of execution of an underwriting agreement or commitment until

(a) for securities acquired by the entity upon the exercise of an over-allotment option, fourbusiness days after the acquisition of those securities, and

(b) for all other securities, the earlier of

(i) the expiration of 40 days after the date of the closing of the purchase of the securities,and

(ii) the date of the completion of the distribution by the underwriter of the securities.

1.2 Deemed Effective Control - For the purposes of the definition of "effective control", an entity that, eitheralone or together with one or more joint actors, owns or controls voting securities carrying more than 30percent of the votes attached to all of the outstanding voting securities of a reporting issuer shall, in theabsence of evidence to the contrary, be deemed to possess effective control over the reporting issuer.

PART 2 GENERAL RELIANCE AND REPORTING PROVISIONS

2.1 Reliance on Reported Outstanding Shares

(1) Subject to subsection (2), in determining its securityholding percentage in a class of securities for thepurposes of the early warning requirements or Part 4, an entity may rely upon information mostrecently provided by the issuer of the securities in a material change report or under section 2.1 ofNational Instrument 62-102 Disclosure of Outstanding Share Data, whichever contains the mostrecent relevant information.

(2) Subsection (1) does not apply if the entity has knowledge both

(a) that the information filed is inaccurate or has changed; and

(b) of the correct information.

2.2 Copies of News Release and Report - An entity that files a news release and report under the earlywarning requirements, or a report under Part 4, in relation to a reporting issuer shall immediately send acopy of each filing to the reporting issuer.

2.3 No Duplication of News Releases or Reports

(1) An entity that is required to issue a news release under both the early warning requirements and theacquisition announcement provisions is exempt from the requirement to issue the news releasecontained in the provision requiring the later release if

(a) the news release is filed under the provision with the earlier reporting requirement; and

(b) the facts required to be contained in the two news releases are identical.

(2) An entity that is required to file a report under the acquisition announcement provisions and eitherthe early warning requirements or Part 4 is exempt from the requirement to file the report under theprovision requiring the later report if

(a) the report is filed under the provision requiring the earlier report; and

(b) the facts required to be contained in the two reports are identical.

PART 3 EARLY WARNING REQUIREMENTS

3.1 Contents of News Releases and Reports

(1) A news release required under the early warning requirements shall contain the information requiredby Appendix E.

(2) Despite subsection (1), a news release required under the early warning requirements may omit theinformation otherwise required by paragraphs 1(d), (g), (h) and (i) of Appendix E, and paragraph 1(j)of Appendix E to the extent that the information relates to paragraphs 1(d), (g), (h) and (i), if

(a) the omitted information is included in the corresponding report required by securitieslegislation; and

(b) the news release indicates the name and telephone number of an individual to contact inorder to obtain a copy of the report.

(3) The offeror shall send a copy of the report referred to in paragraph (2)(a) promptly to any entityrequesting it.

3.2 Filing Relief for Joint Actors - The early warning requirements and the acquisition announcementprovisions do not apply to a joint actor of an offeror in connection with the obligation to make a specific filingof a news release or report if

(a) the offeror files a news release or report at the time that the joint actor would be required to file; and

(b) the news release or report filed discloses the information concerning the joint actor required bysecurities legislation.

3.3 Exemption from Early Warning Requirements for Mutual Fund Securities - The early warningrequirements do not apply in connection with the ownership or control of securities issued by a mutual fundto which National Instrument 81-102 Mutual Funds applies.

PART 4 ALTERNATIVE MONTHLY REPORTING SYSTEM

4.1 Exemption from the Early Warning Requirements - The early warning requirements do not apply to aneligible institutional investor for a reporting issuer if the eligible institutional investor

(a) is not disqualified by section 4.2 from filing reports under this Part for the reporting issuer; and

(b) either

(i) intends to file reports under this Part for the reporting issuer, if no reports are yet required tobe filed; or

(ii) is not in arrears of filing reports under this Part for the reporting issuer, if a report has beenrequired by this Part to be filed.

4.2 Disqualification - An eligible institutional investor shall not file reports under this Part for a reporting issuerif the eligible institutional investor, or a joint actor

(a) makes or intends to make a formal bid for securities of the reporting issuer; or

(b) proposes or intends to propose a reorganization, amalgamation, merger, arrangement or similarbusiness combination with a reporting issuer that if completed would reasonably be expected toresult in the eligible institutional investor, either alone or together with any joint actors, possessingeffective control over the reporting issuer or a successor to all or a part of the business of thereporting issuer.

4.3 Reporting and Filing Requirements

(1) If an eligible institutional investor is relying on the exemption in section 4.1 for a reporting issuer andbecomes disqualified under section 4.2 from filing, or no longer intends to file, reports under this Partfor the reporting issuer, the eligible institutional investor shall

(a) immediately issue and file a news release; and

(b) within two business days after filing the news release, file a report.

(2) The news release and report required by subsection (1) shall contain the information required byAppendix F.

(3) An eligible institutional investor that is required to file a report under subsection (1) for a reportingissuer is not exempt from the early warning requirements for that reporting issuer as of the date onwhich the news release required by subsection (1) is required to be filed.

(4) An eligible institutional investor that files reports under this Part for a reporting issuer and thatcontrols securities of the reporting issuer that are owned by another entity shall

(a) on request by the entity, promptly advise the entity of the number of securities held on itsbehalf; and

(b) if the eligible institutional investor has reason to believe that the securityholding percentage ofthe entity in a class of voting or equity securities of the reporting issuer equals 10 percent ormore, promptly advise the entity of the number of securities held on its behalf.

4.4 Restrictions on Acquisitions - An eligible institutional investor that has become disqualified under section4.2 from filing reports under this Part for a reporting issuer, if the securityholding percentage of the eligibleinstitutional investor in a class of voting or equity securities of the reporting issuer is 10 percent or more,shall not acquire ownership of, or control over, any additional securities of the reporting issuer for the period

(a) starting at the time that the news release referred to in paragraph 4.3(1)(a) is required to be filed; and

(b) ending 10 days after the news release is filed.

4.5 Filing Obligations under this Part - In order to rely on the exemption provided by section 4.1, an eligibleinstitutional investor shall file a report

(a) within 10 days after the end of the month in which the eligible institutional investor elected to begin tofile reports for the reporting issuer under this Part, if the securityholding percentage of the eligibleinstitutional investor in a class of voting or equity securities of the reporting issuer at the end of themonth is 10 percent or more;

(b) within 10 days after the end of the month in which the securityholding percentage of the eligibleinstitutional investor in a class of voting or equity securities of the reporting issuer, as at the end ofthe month, increased to 10 percent or more;

(c) within 10 days after the end of the month in which the securityholding percentage of the eligibleinstitutional investor in a class of voting or equity securities of the reporting issuer, as at the end ofthe month, increased or decreased past thresholds that are products of whole numbers multiplied by2.5 percent of the outstanding securities of the class and that are in excess of 10 percent of theoutstanding securities of the class; and

(d) within 10 days after the end of the month in which the securityholding percentage of the eligibleinstitutional investor in a class of voting or equity securities of the reporting issuer, as at the end ofthe month, decreased to less than 10 percent.

4.6 Change Reports - In addition to the filing requirements of section 4.5, an eligible institutional investor shallfile a report within 10 days after the end of the month in which there has been a change in a material factcontained in the report of the eligible institutional investor most recently filed under this Part.

4.7 Contents of Reports

(1) A report filed under this Part shall contain the information required by Appendix G.

(2) Despite subsection (1), a report filed under paragraph 4.5(d) may be limited to

(a) the name and address of the eligible institutional investor;

(b) the name of the reporting issuer and the designation and number or principal amount of votingor equity securities of the reporting issuer in respect of which the report is being filed and thesecurityholding percentage of the eligible institutional investor in the class of securities; and

(c) a statement that the eligible institutional investor is eligible to file reports under this Part.

4.8 Exemptions - The requirement to file a report under this Part does not apply to a joint actor with an eligibleinstitutional investor in connection with a specific filing if

(a) the eligible institutional investor files a report under this Part at the time that the joint actor is requiredto file; and

(b) the report discloses the information concerning the joint actor required by this Instrument.

PART 5 AGGREGATION RELIEF

5.1 Separate Business Units - An eligible institutional investor, or an affiliate or associate of an eligibleinstitutional investor, that conducts business or investment activities through business units may, for thepurposes of the applicable provisions and securities legislation related to the applicable definitions, treatsecurities that are owned or controlled through a business unit, or securities into which those securities areconvertible, exerciseable or exchangeable, separately from securities owned or controlled through anyother of its business units if

(a) decisions on each of the acquisition, disposition, holding or voting of the securities owned orcontrolled by a business unit are made in all circumstances by that business unit;

(b) the business unit is not a joint actor with any other business unit with respect to the securities,determined without regard to the presumption in securities legislation that an associate or affiliate ofan offeror is presumed to be acting jointly or in concert with the offeror;

(c) no entity that makes, advises on, participates in the formulation of, or exercises influence over,decisions on the acquisition, disposition, holding or voting of securities owned or controlled by or onbehalf of a business unit also makes, advises on, participates in the formulation of or exercisesinfluence over, decisions on the acquisition, disposition, holding or voting of securities owned orcontrolled by or on behalf of any other business unit, except for the purposes of

(i) preparing research reports,

(ii) monitoring or ensuring compliance with regulatory requirements, or

(iii) setting, monitoring or ensuring compliance with general investment policies, guidelines,objectives or restrictions;

(d) the eligible institutional investor or affiliate or associate has reasonable grounds for believing thateach business unit complies with the applicable provisions and securities legislation related to theapplicable definitions in connection with the securities owned or controlled by the business unit;

(e) the eligible institutional investor or affiliate or associate has taken reasonable steps to ensure thateach business unit complies with the requirements of this Part; and

(f) the eligible institutional investor or affiliate or associate complies with section 5.3.

5.2 Securities Held by an Investment Fund - An eligible institutional investor, or an affiliate or associate of aneligible institutional investor, may, for the purposes of the applicable provisions and securities legislationrelated to the applicable definitions, treat securities owned or controlled by an investment fund over whichthe eligible institutional investor, affiliate or associate exercises or shares control, or securities into whichthose securities are convertible, exercisable or exchangeable, separately from other securities owned orcontrolled by the eligible institutional investor or affiliate or associate if

(a) the investment fund is not a private mutual fund;

(b) a portfolio adviser manages the investment fund on behalf of the eligible institutional investor under awritten agreement;

(c) the portfolio adviser has been identified as managing the investment fund in a document provided toan investor;

(d) none of the eligible institutional investor, its affiliates or associates, or a director, officer, partner,employee or agent of the eligible institutional investor or its affiliates or associates, makes, adviseson, participates in the formulation of, or exercises influence over, decisions made by the portfolioadviser on the acquisition, disposition, holding or voting of securities, except for the purposes of

(i) preparing research reports,

(ii) monitoring or ensuring compliance with regulatory requirements, or

(iii) setting, monitoring or ensuring compliance with general investment policies, guidelines,objectives or restrictions;

(e) the eligible institutional investor or affiliate or associate has reasonable grounds for believing that theportfolio adviser complies with the applicable provisions and securities legislation related to theapplicable definitions in connection with securities owned or controlled by the investment fund;

(f) the portfolio adviser neither controls nor is controlled by the eligible institutional investor or an affiliateor associate of the eligible institutional investor; and

(g) the eligible institutional investor or affiliate or associate complies with section 5.3.

5.3 Reporting and Record Keeping

(1) In addition to the requirements of sections 5.1 and 5.2, in order to rely on section 5.1 or 5.2, aneligible institutional investor or an affiliate or associate shall indicate in any document released orfiled under the applicable provisions or securities legislation related to the applicable definitions

(a) its reliance on either section 5.1 or 5.2;

(b) the identity of the business units or investment funds for which ownership and control of thesecurities has been disclosed; and

(c) the fact that securities owned or controlled by other business units or investment funds havenot been, or may not have been, disclosed.

(2) An eligible institutional investor or affiliate or associate shall maintain records of the detailsconcerning

(a) business units of the entity that are treated separately, by reason of section 5.1, for thepurposes of compliance with the applicable provisions and securities legislation related to theapplicable definitions; and

(b) investment funds whose ownership of, or control over, securities are treated separately, byreason of section 5.2, for the purposes of compliance with the applicable provisions andsecurities legislation related to the applicable definitions.

5.4 No Requirement to Satisfy Insider Reporting Requirement - If an eligible institutional investor, or anaffiliate or associate of an eligible institutional investor, is relying on this Part so that it is not subject to theinsider reporting requirement for a reporting issuer, then every director or senior officer of the eligibleinstitutional investor, or of the affiliate or associate of an eligible institutional investor, who is an insider ofthe reporting issuer solely as a result of being a director or senior officer of the eligible institutional investor,or the affiliate or associate of an eligible institutional investor, is not subject to the insider reportingrequirement for the reporting issuer.

PART 6 ISSUER ACTIONS

6.1 Issuer Actions

(1) An entity is exempt from the early warning requirements and the obligation to report under Part 4 inconnection with an increase in the securityholding percentage of the entity in a class of securities ofa reporting issuer that arises without any action being taken by the entity and solely from

(a) a reduction in outstanding securities that occurs as a result of redemptions, retractions orother repurchases by the reporting issuer, that affect or are offered to all securityholders of therelevant class; or

(b) a transaction effected under National Instrument 32-101 Small Securityholder Selling andPurchase Arrangements.

(2) An entity is exempt from the early warning requirements and the obligation to report under Part 4 inconnection with a decrease in the securityholding percentage of the entity in a class of securities of areporting issuer that arises without any action being taken by the entity and solely from

(a) an increase in outstanding securities that occurs as a result of treasury issuances of securitiesby the reporting issuer; or

(b) a transaction effected under National Instrument 32-101 Small Securityholder Selling andPurchase Arrangements.

(3) An entity may rely upon an exemption provided by this section in connection with a class of securitiesonly until the entity undertakes any transaction that changes the securityholding percentage of theentity in that class of securities.

(4) An entity that undertakes a transaction described in subsection (3) shall comply with the earlywarning requirements or Part 4 in connection with the class of securities referred to in thatsubsection in a manner that reflects the changes in the securityholding percentage of the entity inthat class of securities since the last news release or report made or filed under the early warningrequirements or Part 4.

PART 7 UNDERWRITING EXEMPTION

7.1 Underwriting Exemption - An entity is exempt from the early warning requirements and the obligation toreport under Part 4 in respect of securities owned by the entity in its capacity as underwriter or securitiesinto which those securities are convertible, or exerciseable or exchangeable, during the underwriting period,if

(a) the entity is engaged in the business of an underwriter of securities; and

(b) the entity or the issuer of the securities has issued and filed a news release that

(i) announces the proposed underwriting, and

(ii) identifies the reporting issuer and the designation and number or principal amount of thesecurities underwritten.

PART 8 RELIEF FOR PLEDGEES

8.1 Relief for Pledgees

(1) For securities that are controlled by a person or company as a pledgee, and any securities into whichthose securities are convertible, exercisable or exchangeable, in either case that are pledged,mortgaged or otherwise encumbered as collateral for a debt under a written pledge agreement and inthe ordinary course of the business of the person or company, the person or company is exemptfrom the applicable provisions, and those securities are not required to be taken into account for thepurposes of securities legislation related to the applicable definitions.

(2) Subsection (1) does not apply at any time that the person or company is legally entitled to dispose ofthe securities as pledgee for the purpose of applying proceeds of realization in repayment of thesecured debt.

8.2 Further Relief for de minimis Pledgees

(1) Despite subsection 8.1(2), for securities that are controlled by a person or company as a pledgee,and any securities into which those securities are convertible, exercisable or exchangeable, in eithercase that are or were pledged, mortgaged or otherwise encumbered as collateral for a debt, under awritten pledge agreement and in the ordinary course of the business of the person or company, theperson or company is exempt from the applicable provisions, and those securities are not required tobe taken into account for the purposes of securities legislation related to the applicable definitions,even if the person or company is legally entitled to dispose of the securities as pledgee for thepurpose of applying proceeds of realization in repayment of the secured debt, if

(a) the principal amount of the debt, together with the principal amount of all other debts of orguaranteed by the same borrower to the person or company, does not exceed $2,000,000;and

(b) the pledged securities, and securities into which the pledged securities are convertible,exercisable or exchangeable, constitute less than 10 percent of a class of voting or equitysecurities.

8.3 Corresponding Insider Reporting Relief - If a person or company is exempt under section 8.1 or 8.2 fromthe insider reporting requirement for those securities of a reporting issuer that it controls as pledgee, everydirector or senior officer of the person or company who is an insider of the reporting issuer solely as a resultof being a director or senior officer of the person or company that is an insider of the reporting issuer isexempt from the insider reporting requirement for those securities.

PART 9 INSIDER REPORTING EXEMPTION; EARLY WARNING DECREASE REPORTS

9.1 Insider Reporting Exemption; Early Warning Decrease Reports

(1) Subject to subsections (3) and (4), an eligible institutional investor is exempt from the insiderreporting requirement for a reporting issuer if

(a) the eligible institutional investor has filed the report required under the early warningrequirements or Part 4 for the reporting issuer in connection with the current securityholdingpercentage of the eligible institutional investor in the classes of voting and equity securities ofthe reporting issuer;

(b) the eligible institutional investor is not disqualified under section 4.2 from filing reports underPart 4;

(c) the eligible institutional investor does not have knowledge of any material fact or materialchange with respect to the reporting issuer that has not been generally disclosed;

(d) the eligible institutional investor does not receive in the ordinary course of its business andinvestment activities knowledge of any material fact or material change with respect to thereporting issuer that has not been generally disclosed;

(e) there are no directors or officers of the reporting issuer who were, or could reasonably beseen to have been, selected, nominated or designated by the eligible institutional investor orany joint actor; and

(f) the eligible institutional investor, either alone or together with any joint actors, does notpossess effective control of the reporting issuer.

(2) An eligible institutional investor relying on the exemption in subsection (1) shall maintain records thatinclude the information that, absent this section, would have been required to be included in a reportfiled under the insider reporting requirement.

(3) Despite subsection (1), an eligible institutional investor that is filing reports under the early warningrequirements for a reporting issuer, and whose securityholding percentage in a class of voting orequity securities of the reporting issuer decreases by two percent or more, may rely upon theexemption contained in subsection (1) for the reporting issuer only if

(a) the eligible institutional investor treats the decrease as a change in a material fact for thepurposes of securities legislation pertaining to the early warning requirements; or

(b) the decrease arose without any action being taken by the eligible institutional investor andsolely from an increase in outstanding securities that occurred as a result of treasuryissuances of securities by the reporting issuer, and the eligible institutional investor has notundertaken any transaction in respect of the class of securities since the decrease.

(4) Despite subsection (1), an eligible institutional investor that is an insider of a reporting issuer may notrely upon the exemption contained in subsection (1) if

(a) the eligible institutional investor, either alone or with a joint actor or joint actors, purchased inthe previous month, directly or indirectly, 50 percent or more of all of the securities of a classthat were reported sold on stock exchanges, over-the-counter markets or both in the previousmonth; or

(b) the eligible institutional investor, either alone or with a joint actor or joint actors, sold in theprevious month, directly or indirectly, 50 percent or more of all of the securities of a class thatwere reported sold on stock exchanges, over-the-counter markets or both in the previousmonth.

(5) If an eligible institutional investor is exempt under subsection (1) from the insider reportingrequirement for a reporting issuer, every director or senior officer of the eligible institutional investorwho is an insider of the reporting issuer solely as a result of being director or senior officer of theeligible institutional investor is exempt from the insider reporting requirement for the reporting issuer.

PART 10 MORATORIUM RELIEF

10.1 Moratorium Relief

(1) An entity is exempt from the moratorium provisions in respect of the acquisition of, or offers toacquire, securities, if those acquisitions or offers are made by an investment manager acting onbehalf of the entity without the direction or prior knowledge of the entity.

(2) Subsection (1) does not apply to an investment manager acting as principal.

(3) An entity is exempt from the moratorium provisions in respect of any acquisitions of, or offers toacquire, securities made solely in its capacity as an approved specialist, or market maker,recognized by a stock exchange or an over-the-counter market that represents a published marketfor the securities.

(4) An eligible institutional investor is exempt from the moratorium provisions in respect of securities of areporting issuer at any time in which

(a) the eligible institutional investor is using the exemption in section 4.1 in connection with filingsrelating to securities of that reporting issuer; or

(b) the eligible institutional investor is subject to the restrictions contained in section 4.4.

PART 11 EXEMPTIONS

11.1 Exemptions

(1) The regulator or the securities regulatory authority may grant an exemption to this Instrument, inwhole or in part, subject to such conditions or restrictions as may be imposed in the exemption.

(2) Despite subsection (1), in Ontario only the regulator may grant such an exemption.

PART 12 EFFECTIVE DATE

12.1 Effective Date - This Instrument comes into force on March 15, 2000.

NATIONAL INSTRUMENT 62-103

APPENDIX A

CONTROL BLOCK DISTRIBUTION DEFINITION

JURISDICTION SECURITIES LEGISLATION REFERENCE

ALBERTA Clause 1(f)(iii) of the Securities Act (Alberta)

BRITISH COLUMBIA Paragraph (c) of the definition of "distribution" contained in subsection 1(1) of the SecuritiesAct (British Columbia)

MANITOBA Paragraph 1(b) of the definition of "primary distribution to the public" contained in subsection1(1) of the Securities Act (Manitoba)

NEW BRUNSWICK Paragraph (b) of the definition of "primary distribution to the public" contained in section 1 ofthe Security Frauds Prevention Act (New Brunswick)

NEWFOUNDLAND Clause 2(1)(l)(iii) of the Securities Act (Newfoundland)

NOVA SCOTIA Clause 2(1)(l)(iii) of the Securities Act (Nova Scotia)

ONTARIO Paragraph (c) of the definition of "distribution" contained in subsection 1(1) of the SecuritiesAct (Ontario)

PRINCE EDWARD Clause 1(b.1)(iii) of the Securities Act
ISLAND (Prince Edward Island)

SASKATCHEWAN Subclause 2(1)(r)(iii) of The Securities Act, 1988 (Saskatchewan)

NATIONAL INSTRUMENT 62-103

APPENDIX B

EARLY WARNING REQUIREMENTS

JURISDICTION SECURITIES LEGISLATION REFERENCE

ALBERTA Subsections 141(1), 141(2), and 141(3) of the Securities Act (Alberta)

BRITISH COLUMBIA Subsections 111(1) and 111(2) of the Securities Act (British Columbia)

MANITOBA Subsections 92(1) and 92(2) of the Securities Act (Manitoba)

NEWFOUNDLAND Subsections 102(1) and 102(2) of the Securities Act (Newfoundland)

NOVA SCOTIA Subsections 107(1) and 107(2) of the Securities Act (Nova Scotia)

ONTARIO Subsections 101(1) and 101(2) of the Securities Act (Ontario)

QUEBEC Sections 147.11 and 147.12 of the Securities Act (Quebec)

SASKATCHEWAN Subsections 110(1) and 110(2) of The Securities Act, 1988 (Saskatchewan)

NATIONAL INSTRUMENT 62-103

APPENDIX C

MORATORIUM PROVISIONS

JURISDICTION SECURITIES LEGISLATION REFERENCE

ALBERTA Subsection 141(4) of the Securities Act (Alberta)

BRITISH COLUMBIA Subsection 111(3) of the Securities Act (British Columbia)

MANITOBA Subsection 92(3) of the Securities Act (Manitoba)

NEWFOUNDLAND Subsection 102(3) of the Securities Act (Newfoundland)

NOVA SCOTIA Subsection 107(3) of the Securities Act (Nova Scotia)

ONTARIO Subsection 101(3) of the Securities Act (Ontario)

QUEBEC Section 147.14 of the Securities Act (Quebec)

SASKATCHEWAN Subsection 110(3) of The Securities Act, 1988 (Saskatchewan)

NATIONAL INSTRUMENT 62-103

APPENDIX D

SECURITY OWNERSHIP AND CONTROL PROVISIONS

JURISDICTION SECURITIES LEGISLATION REFERENCE

ALBERTA Sections 5 and 6, subsections 131(4), 131(5) and 131(6), and section 131.1 of the SecuritiesAct (Alberta)

BRITISH COLUMBIA Subsection 1(4) and sections 95 and 96 of the Securities Act (British Columbia)

MANITOBA Subsections 1(6) and 1(7) and sections 81 and 82 of the Securities Act (Manitoba)

NEWFOUNDLAND Subsections 2(5) and 2(6) and sections 91 and 92 of the Securities Act (Newfoundland)

NOVA SCOTIA Subsections 2(5) and 2(6) and sections 96 and 97 of the Securities Act (Nova Scotia)

ONTARIO Subsections 1(5) and 1(6) and sections 90 and 91 of the Securities Act (Ontario)

QUEBEC Sections 111 and 112 of the Securities Act (Quebec)

SASKATCHEWAN Subsections 2(5) and 2(6) and sections 99 and 100 of The Securities Act, 1988(Saskatchewan)

APPENDIX E

REQUIRED DISCLOSURE

REQUIRED DISCLOSURE IN NEWS RELEASE FILED UNDER EARLY WARNING REQUIREMENTS

1. For each class of securities involved in a transaction or occurrence giving rise to an obligation to file a newsrelease under the early warning requirements and, if applicable, for each class of voting or equity securitiesinto which the securities of the class are convertible, exercisable or exchangeable, the news release shallinclude:

(a) the name and address of the offeror;

(b) the designation and number or principal amount of securities and the offeror's securityholdingpercentage in the class of securities of which the offeror acquired ownership or control in thetransaction or occurrence giving rise to the obligation to file the news release, and whether it wasownership or control that was acquired in those circumstances;

(c) the designation and number or principal amount of securities and the offeror's securityholdingpercentage in the class of securities immediately after the transaction or occurrence giving rise toobligation to file the news release;

(d) the designation and number or principal amount of securities and the percentage of outstandingsecurities of the class of securities referred to in paragraph (c) over which

(i) the offeror, either alone or together with any joint actors, has ownership and control,

(ii) the offeror, either alone or together with any joint actors, has ownership but control is held byother persons or companies other than the offeror or any joint actor, and

(iii) the offeror, either alone or together with any joint actors, has exclusive or shared control butdoes not have ownership;

(e) the name of the market in which the transaction or occurrence that gave rise to the news releasetook place;

(f) the purpose of the offeror and any joint actors in effecting the transaction or occurrence that gaverise to the news release, including any future intention to acquire ownership of, or control over,additional securities of the reporting issuer;

(g) the general nature and the material terms of any agreement, other than lending arrangements, withrespect to securities of the reporting issuer entered into by the offeror, or any joint actor, and theissuer of the securities or any other entity in connection with the transaction or occurrence giving riseto the news release, including agreements with respect to the acquisition, holding, disposition orvoting of any of the securities;

(h) the names of any joint actors in connection with the disclosure required by this Appendix;

(i) in the case of a transaction or occurrence that did not take place on a stock exchange or othermarket that represents a published market for the securities, including an issuance from treasury, thenature and value of the consideration paid by the offeror; and

(j) if applicable, a description of any change in any material fact set out in a previous report by the entityunder the early warning requirements or Part 4 in respect of the reporting issuer's securities.

2. Despite paragraph (1)(b), an offeror may omit the securityholding percentage from a news release if it isincluded in the corresponding report filed under the early warning requirements and the change inpercentage would represent less than 1 percent of the class.

3. A news release may also include

(a) information in addition to that required by this Instrument; and

(b) a declaration that the issuance of the news release is not an admission that an entity named in thenews release owns or controls any described securities or is a joint actor with another named entity.

APPENDIX F

REQUIRED DISCLOSURE

REQUIRED DISCLOSURE IN NEWS RELEASE AND REPORT FILED BY AN ELIGIBLE INSTITUTIONALINVESTOR UNDER SECTION 4.3

1. For each class of securities involved in an occurrence giving rise to an obligation to file a news releaseunder section 4.3 and, if applicable, for each class of voting or equity securities into which the securities ofthe class are convertible, exercisable or exchangeable, the news release shall include:

(a) a statement that the eligible institutional investor is ceasing to file reports under Part 4 for thereporting issuer;

(b) the reasons for doing so;

(c) the name and address of the eligible institutional investor;

(d) the designation and number or principal amount of securities and the eligible institutional investor'ssecurityholding percentage in the class of securities immediately after the occurrence giving rise toobligation to file the news release;

(e) the designation and number or principal amount of securities and the percentage of outstandingsecurities of the class of securities referred to in paragraph (d) over which

(i) the eligible institutional investor, either alone or together with any joint actors, has ownershipand control,

(ii) the eligible institutional investor, either alone or together with any joint actors, has ownershipbut control is held by other persons or companies other than the eligible institutional investoror any joint actor, and

(iii) the eligible institutional investor, either alone or together with any joint actors, has exclusive orshared control but does not have ownership;

(f) the purpose of the eligible institutional investor and any joint actors in effecting the occurrence thatgave rise to the news release, including any future intention to acquire ownership of, or control over,additional securities of the reporting issuer;

(g) the general nature and the material terms of any agreement, other than lending arrangements, withrespect to securities of the reporting issuer entered into by the eligible institutional investor, or anyjoint actor, and the issuer of the securities or any other entity in connection with the occurrencegiving rise to the news release, including agreements with respect to the acquisition, holding,disposition or voting of any of the securities;

(h) the names of any joint actors in connection with the disclosure required by this Appendix;

(i) in the case of an occurrence that did not take place on a stock exchange or other market thatrepresents a published market for the securities, including an issuance from treasury, the nature andvalue of the consideration paid by the eligible institutional investor; and

(j) if applicable, a description of any change in any material fact set out in a previous report by theeligible institutional investor under the early warning requirements or Part 4 in respect of thereporting issuer's securities.

2. A news release may also include

(a) information in addition to that required by this Instrument; and

(b) a declaration that the issuance of the news release is not an admission that an entity named in thenews release owns or controls any described securities or is a joint actor with another named entity.

APPENDIX G

REQUIRED DISCLOSURE

REQUIRED DISCLOSURE IN REPORT FILED BY AN ELIGIBLE INSTITUTIONAL INVESTOR UNDER PART 4

1. For each class of securities required to be reported upon under Part 4, a report shall include:

(a) the name and address of the eligible institutional investor;

(b) the net increase or decrease in the number or principal amount of securities, and in the eligibleinstitutional investor's securityholding percentage in the class of securities, since the last report filedby the eligible institutional investor under Part 4 or the early warning requirements;

(c) the designation and number or principal amount of securities and the eligible institutional investor'ssecurityholding percentage in the class of securities at the end of the month for which the report ismade;

(d) the designation and number or principal amount of securities and the percentage of outstandingsecurities referred to in paragraph (c) over which

(i) the eligible institutional investor, either alone or together with any joint actors, has ownershipand control,

(ii) the eligible institutional investor, either alone or together with any joint actors, has ownershipbut control is held by other entities other than the eligible institutional investor or any jointactor, and

(iii) the eligible institutional investor, either alone or together with any joint actors, has exclusive orshared control but does not have ownership;

(e) the purpose of the eligible institutional investor and any joint actors in acquiring or disposing ofownership of, or control over, the securities, including any future intention to acquire ownership of, orcontrol over, additional securities of the reporting issuer;

(f) the general nature and the material terms of any agreement, other than lending arrangements, withrespect to securities of the reporting issuer entered into by the eligible institutional investor, or anyjoint actor, and the issuer of the securities or any other entity in connection with any transaction oroccurrence resulting in the change in ownership or control giving rise to the report, includingagreements with respect to the acquisition, holding, disposition or voting of any of the securities;

(g) the names of any joint actors in connection with the disclosure required by this Appendix;

(h) if applicable, a description of any change in any material fact set out in a previous report by theeligible institutional investor under the early warning requirements or Part 4 in respect of thereporting issuer's securities; and

(i) a statement that the eligible institutional investor is eligible to file reports under Part 4 in respect ofthe reporting issuer.

2. Despite paragraph (1)(b), an eligible institutional investor may omit the securityholding percentage from areport if the change in percentage is less than 1 percent of the class.

3.A report may also include

(a) information in addition to that required by this Instrument; and

(b) a declaration that the filing of the report is not an admission that an entity named in the report ownsor controls any described securities or is a joint actor with another named entity.

 

Footnotes


 

1. In Ontario, at (1998) 21 OSCB 5645.

2. At (1995) 18 OSCB 4887.

3. Section 102 of the Ontario Act, and corresponding provisions of other securities legislation.