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Fifth Session, Thirty-Ninth Legislature

This version is based on the printed bill that was distributed in the Legislature after First Reading.   It is not the official version.   If accuracy is critical, you can obtain a copy of the printed bill from Statutory Publications or view the online bilingual version (PDF).

Bill 22

THE SECURITIES AMENDMENT ACT


Explanatory Note

(Assented to                                         )

HER MAJESTY, by and with the advice and consent of the Legislative Assembly of Manitoba, enacts as follows:

C.C.S.M. c. S50 amended

1           The Securities Act is amended by this Act.

2           Subsection 1(1) is amended by adding the following definition:

"securities regulatory authority" means a body that has powers and duties under the legislation of a jurisdiction outside Manitoba that are analogous to the powers and duties of the commission under this Act and the regulations; (« autorité de réglementation des valeurs mobilières »)

3           Section 108 is replaced with the following:

Interpretation

108         For the purposes of this Part,

(a) every director or senior officer of a company that is itself an insider of a reporting issuer is deemed to be an insider of that reporting issuer;

(b) the acquisition or disposition by an insider of a put, call, or other transferable option with respect to a security is deemed a change in the beneficial ownership of the security to which the transferable option relates; and

(c) for the purpose of reporting under section 109, ownership is deemed to pass at such time as an offer to sell is accepted by the purchaser or the purchaser's agent or an offer to buy is accepted by the vendor or the vendor's agent.

4           Section 111.1 is replaced with the following:

Meaning of "control or direction over a security"

111.1(1)    In this section, "control or direction over a security" does not include the right to cast a vote in respect of that security at a meeting by virtue only of a proxy that complies with the regulations.

Early warning

111.1(2)    If a person or company acquires direct or indirect beneficial ownership of, or direct or indirect control or direction over, securities of a prescribed type or class of a reporting issuer representing a prescribed percentage of the outstanding securities of that type or class, the person or company and any person or company acting jointly or in concert with the person or company must

(a) make and file disclosure in accordance with the regulations; and

(b) comply with any prohibitions in the regulations on transactions in the reporting issuer's securities.

5           Section 112 is replaced with the following:

Definitions

112(1)      The following definitions apply in this section and in sections 112.1, 112.2 and 114.

"material change", in relation to the affairs of a reporting or other issuer, means a change in tthe business, operations or capital of the reporting or other issuer that would reasonably be expected to have a significant effect on the market price or value of any of its securities and includes a decision to implement such a change made by its board of directors, if it is a company, or by its senior management who believe that confirmation of the decision by the board of directors is probable. (« changement important »)

"material fact", in relation to securities issued or proposed to be issued, means a fact that significantly affects, or would reasonably be expected to significantly affect, the market price or value of the securities. (« fait important »)

"person or company in a special relationship with a reporting or other issuer" means

(a) a person or company that is an insider, affiliate or associate of,

(i) the reporting or other issuer,

(ii) a person or company that is proposing to make a take-over bid, as defined in Part IX, for the securities of the reporting or other issuer,

(iii) a person or company that is proposing to become a party to a reorganization, amalgamation, merger, arrangement or similar business combination with the reporting or other issuer, or

(iv) a person or company that is proposing to acquire a substantial portion of the property of a reporting or other issuer;

(b) a person or company that is engaging in or proposes to engage in any business or professional activity with or on behalf of the reporting or other issuer or with or on behalf of a person or company described in subclause (a)(ii), (iii) or (iv);

(c) a person who is a director, officer or employee of the reporting or other issuer or of a person or company described in subclause (a)(ii), (iii) or (iv) or clause (b);

(d) a person or company that learned of the material fact or material change with respect to the reporting or other issuer while the person or company was a person or company described in clause (a), (b) or (c); or

(e) a person or company that learns of a material fact or material change with respect to the reporting or other issuer from any other person or company described in this subsection, including a person or company described in this clause, and knows or ought reasonably to have known that the other person or company is a person or company in such a relationship. (« personne ou compagnie ayant des relations particulières avec un émetteur assujetti ou autre »)

"reporting or other issuer" means

(a) a reporting issuer; or

(b) another issuer whose securities are traded in a primary distribution to the public in Manitoba or elsewhere. (« émetteur assujetti ou autre »)

"security" includes

(a) a put, call, option or other right or obligation to purchase or sell securities; and

(b) a security whose market price is derived, in whole or in part, from the market price of the securities of the reporting or other issuer. (« valeur mobilière »)

Trading with knowledge of undisclosed information

112(2)      No person or company in a special relationship with a reporting or other issuer shall purchase or sell securities of the reporting or other issuer with the knowledge of a material fact or material change with respect to the reporting or other issuer that has not been generally disclosed.

Tipping

112(3)      No reporting or other issuer and no person or company in a special relationship with a reporting or other issuer shall, other than in the necessary course of business, inform another person or company of a material fact or material change with respect to the reporting or other issuer before the fact or change has been generally disclosed.

Prohibition on early disclosure of material information

112.1       A person or company that proposes to

(a) make a take-over bid, as defined in Part IX, for the securities of a reporting or other issuer;

(b) become a party to a reorganization, amalgamation, merger, arrangement or similar business combination with a reporting or other issuer; or

(c) acquire a substantial portion of the property of a reporting or other issuer;

must not inform another person or company of a material fact or material change with respect to the reporting or other issuer before it has been generally disclosed unless the information is given in the necessary course of business to effect the take-over bid, business combination or acquisition.

Defences re sections 112 and 112.1

112.2       A person or company must not be found to have contravened subsection 112(2) or (3) or section 112.1 if the person or company proves that

(a) the person or company reasonably believed that the material fact or material change had been generally disclosed; or

(b) the material fact or material change was known or ought reasonably to have been known to the seller or purchaser.

Misleading or untrue statements

112.3(1)    A person or company must not make a statement that the person or company knows or reasonably ought to know

(a) in a material respect and at the time and in the light of the circumstances under which it is made, is misleading or untrue or does not state a fact that is required to be stated or that is necessary to make the statement not misleading; and

(b) would reasonably be expected to have a significant effect on the market price or value of a security.

No statutory right of action for damages

112.3(2)    A breach of subsection (1) does not give rise to a statutory right of action for damages otherwise than under Part XIV or XVIII.

6(1)        Subsection 113(1) is amended in the part before clause (a)

(a) by striking out "reporting issuer" wherever it occurs and substituting "reporting or other issuer"; and

(b) in the English version, by striking out "proves that," and substituting "proves that".

6(2)        Subsections 113(2) to (5) are replaced with the following:

Liability for tipping

113(2)      Except as provided in subsection (2.1), every person or company

(a) that is a reporting or other issuer;

(b) that is a person or company in a special relationship with a reporting or other issuer; or

(c) that proposes

(i) to make a take-over bid, as defined in Part IX, for the securities of a reporting or other issuer,

(ii) to become a party to a reorganization, amalgamation, merger, arrangement or similar business combination with a reporting or other issuer, or

(iii) to acquire a substantial portion of the property of a reporting or other issuer;

and that informs another person or company of a material fact or material change with respect to the reporting or other issuer that has not been generally disclosed is liable to compensate for damages any person or company that thereafter sells securities of that issuer to or purchases securities of that issuer from the person or company that received the information.

Defences to liability for tipping

113(2.1)    A person or company is not liable under subsection (2) if the person or company proves that

(a) the person or company reasonably believed that the material fact or material change had been generally disclosed;

(b) the material fact or material change was known or ought reasonably to have been known to the seller or purchaser;

(c) in the case of an action against a reporting or other issuer or a person or company in a special relationship with the reporting or other issuer, the information was given in the necessary course of business; or

(d) in the case of an action against a person or company described in subclause (2)(c)(i), (ii) or (iii), the information was given in the necessary course of business to effect the take-over bid, business combination or acquisition.

Liability for using inside information about mutual funds or managed portfolios

113(3)      A person or company that

(a) has access to information concerning the investment program of a mutual fund in Manitoba or the investment portfolio managed for a client by a dealer or adviser; and

(b) uses that information for the person's or company's direct benefit or advantage to purchase or sell, for the person's or company's account, securities of a reporting or other issuer whose securities are included in the mutual fund's security portfolio or the investment portfolio managed by the dealer or adviser;

is accountable to the mutual fund or the client of the dealer or adviser for any benefit or advantage received or receivable as a result of such purchase or sale.

Accountability for benefit or advantage

113(4)      A person or company that is an insider, affiliate or an associate of a reporting or other issuer that

(a) sells or purchases the securities of the reporting or other issuer with knowledge of a material fact or material change with respect to the reporting or other issuer that has not been generally disclosed; or

(b) communicates to another person, other than in the necessary course of business, knowledge of a material fact or material change with respect to the reporting or other issuer that has not been generally disclosed;

is accountable to the reporting or other issuer for any benefit or advantage received or receivable by the person or company as a result of the purchase, sale or communication, unless the person or company proves that the person or company reasonably believed that the material fact or material change had been generally disclosed.

Joint and several liability

113(5)      If more than one person or company referred to in subsection (1), (2), (3) or (4) is liable under that subsection as to the same transaction or series of transactions, their liability is joint and several.

6(3)        Subsections 113(7) and (8) are repealed.

7           Section 114 is replaced with the following:

Order to commence action for accounting

114(1)      A person or company may apply to the Court of Queen's Bench for an order requiring the commission to commence or continue an action in the name and on behalf of the reporting or other issuer to enforce the liability created by subsection 113(4) if the person or company

(a) was at the time of the sale, purchase or communication referred to in that subsection; or

(b) is at the time of the application;

an owner of securities of the reporting or other issuer.

Grounds for making order

114(2)      The court may make the order on such terms as to security for costs or otherwise as it considers appropriate, but only if it is satisfied that the person or company has reasonable grounds for believing that the reporting or other issuer has a cause of action under subsection 113(4) and that

(a) the reporting or other issuer has refused or failed to commence an action under that subsection within 60 days after receiving a written request from the person or company to commence the action; or

(b) the reporting or other issuer has failed to prosecute diligently an action commenced by it under that subsection.

Notice to issuer and commission

114(3)      The reporting or other issuer and the commission

(a) must be given notice of an application under subsection (1); and

(b) are parties to the application and may appear and be heard on it.

Order requiring issuer to co-operate

114(4)      An order made under this section must require the reporting or other issuer to

(a) co-operate fully with the commission in instituting or prosecuting the action; and

(b) make available to the commission all books, records, documents and other material or information relevant to the action known to or reasonably ascertainable by the reporting or other issuer.

8(1)        Subsection 136(4) is amended

(a) in the section heading of the English version, by striking out " 112(1), (2) or (3)" and substituting "subsection 112(2) or (3) or section 112.1"; and

(b) in the part before clause (a), by striking out "subsection 112(1), (2) or (3)" and substituting "subsection 112(2) or (3) or section 112.1".

8(2)        Subsection 136(5) is amended

(a) in clauses (a) and (b), by striking out "subsection 112(1)" and substituting "subsection 112(2)"; and

(b) in clause (c), by striking out "subsection 112(2) or (3)" and substituting "subsection 112(3) or section 112.1".

9           Subsection 148.4(1) is amended

(a) by replacing the section heading with "Inter-jurisdictional enforcement";

(b) in the part before clause (a) of the English version, by striking out "has";

(c) in clause (a) of the English version, by adding "has" at the beginning;

(d) in clause (b) of the English version,

(i) by adding "has" at the beginning, and

(ii) by striking out "or" at the end; and

(e) by replacing clause (c) with the following:

(c) is subject to an order made by a securities regulatory authority in Canada or elsewhere imposing sanctions, conditions, restrictions or requirements on the person or company; or

(d) has agreed with a securities regulatory authority in Canada or elsewhere to be subject to sanctions, conditions, restrictions or requirements.

10          The following is added after clause 149(ii):

(jj) prescribing requirements in respect of credit rating organizations, including requirements about

(i) the disclosure or furnishing of information to the commission by a credit rating organization,

(ii) the establishment, publication and enforcement of a code of conduct applicable to directors, officers and employees of credit rating organizations, including minimum requirements to be included in the code,

(iii) prohibitions against and procedures regarding conflicts of interest between a credit rating organization and the person or company whose securities it is rating,

(iv) the maintenance of books and records necessary for the conduct of a credit rating organization's business and the issuance and maintenance of credit ratings, and

(v) the appointment by credit rating organizations of one or more compliance officers and any minimum standards that must be met or qualifications a compliance officer must have;

(kk) prescribing classes of documents or records to which the commission or the Director must not have access when exercising a power in relation to an auditor oversight body.

11          Clause 149.1(1)(a) is amended by striking out "and (cc)" and substituting ", (cc) and (kk)".

12          The following is added after Part XVIII:

PART XIX

CREDIT RATING ORGANIZATIONS

Definitions

198         The following definitions apply in this Part.

"credit rating" means an assessment that is publicly disclosed or distributed by subscription concerning the creditworthiness of an issuer

(a) as an entity; or

(b) with respect to specific securities or a specific pool of securities or assets. (« notation »)

"credit rating organization" means a person or company that issues credit ratings. (« organisme de notation »)

Applying for designation

199(1)      A credit rating organization may apply to the commission to be designated by the commission if the credit rating organization wants its credit ratings to satisfy

(a) a requirement of this Act or the regulations that a credit rating be given by a credit rating organization designated by the commission; or

(b) a condition for an exemption under this Act or the regulations.

Designation

199(2)      Subject to any terms or conditions that the commission considers appropriate, it may designate a credit rating organization if

(a) an application for designation is made by the credit rating organization or the Director; and

(b) the commission considers it in the public interest to designate the credit rating organization.

Cancelling a designation or making changes

199(3)      The commission may, if it considers it in the public interest, cancel the designation of a credit rating organization or impose or change the terms and conditions of the designation.

Right to hearing

199(4)      The commission must not, without giving the credit rating organization an opportunity to be heard,

(a) refuse to designate it as a credit rating organization;

(b) cancel its designation;

(c) impose terms and conditions on the designation or change the terms and conditions to which it is subject; or

(d) designate it as a credit rating organization upon the application of the Director.

Duty to comply with prescribed requirements

200         A designated credit rating organization must comply with such requirements as may be prescribed by the regulations, including requirements

(a) about the establishment, publication and enforcement by the credit rating organization of a code of conduct applicable to its directors, officers and employees;

(b) about the minimum requirements to be included in the code of conduct;

(c) prohibiting conflicts of interest between the credit rating organization and a person or company whose securities are being rated; and

(d) establishing procedures to be followed if conflicts of interest arise or to avoid conflicts of interest.

Commission not involved in credit rating

201         Nothing in this Part is to be construed as authorizing the commission to direct or regulate the content of credit ratings or methodologies used to determine credit ratings.

Representations about commission approval

202         No person or company shall make an oral or written representation that the commission or the Director has passed judgment on the merits of a credit rating or the methodologies used to determine the credit rating.

PART XX

AUDITOR OVERSIGHT BODIES

Definition

203         In this Part, "auditor oversight body" means a body that

(a) regulates the auditing or review of financial statements that are required to be filed under this Act; and

(b) is recognized under this Part.

Recognizing auditor oversight bodies

204(1)      The commission may, in writing, recognize a body as an auditor oversight body if the commission considers

(a) that it is in the public interest to do so; and

(b) that the body

(i) is in compliance with this Act and the regulations, and

(ii) is able to continue to be in compliance.

Hearing

204(2)      The commission must not refuse to recognize a body as an auditor oversight body without giving the body an opportunity to be heard.

Suspension or cancellation of recognition

205         If the commission, after giving an auditor oversight body an opportunity to be heard, considers it in the public interest to do so, it may reprimand the body or suspend, cancel, restrict or impose terms and conditions on its recognition under this Part.

Voluntary surrender of recognition

206         Subject to any terms and conditions that it may impose, the commission may accept the voluntary surrender of the recognition of an auditor oversight body if

(a) the auditor oversight body applies; and

(b) the commission considers that the acceptance will not be prejudicial to the public interest.

Commission's powers

207         If the commission considers it in the public interest to do so, it may make a decision in respect of

(a) an internal regulation or proposed internal regulation of an auditor oversight body; or

(b) a direction, decision, order or ruling made under an internal regulation of the body.

Auditor oversight body to regulate members and participants

208(1)      Subject to this Act, the regulations, the commission's decisions and the Director's decisions, an auditor oversight body must regulate the standards of practice and business conduct of its members and participants.

Limitations on duty to regulate

208(2)      For the purpose of subsection (1), an auditor oversight body is not required to regulate the standards of practice and business conduct of its members and participants except to the extent that the regulation relates to the auditing or review of financial statements that are required to be filed under this Act.

Auditor oversight body may adopt rules, standards or policies

209         For the purpose of performing its duties under section 208, an auditor oversight body may adopt a rule, standard or policy for regulating its members or participants on the basis that a government, a governmental authority or another regulatory body applies the same rule, standard or policy.

Auditor oversight body may require disclosure

210(1)      If a member or participant of an auditor oversight body receives from the auditor oversight body a written request to provide information or records relevant to the auditing or review of financial statements that are required to be filed under this Act, the member or participant must provide the information or records that

(a) are specified in the request; or

(b) are within the class described in the request;

including information or records relating to or prepared by an issuer, whether or not the issuer is named in the request.

Auditor oversight body may set time for disclosure

210(2)      An auditor oversight body may, in the request under subsection (1), specify a reasonable time or interval when the information or records are to be provided to the auditor oversight body.

Restriction on disclosure

210(3)      An auditor oversight body may require the provision of information or records under subsection (1) that are the subject of solicitor-client privilege if access to the information or records is absolutely necessary to the purpose of the review of the audit.

Privilege preserved

210(4)      Disclosure of information or records under subsection (1) does not negate or constitute a waiver of any privilege and the privilege continues for all other purposes.

Auditor oversight body and personnel not compellable

211         An auditor oversight body or a director, officer, employee or agent of an auditor oversight body is not required, in any proceeding to which the auditor oversight body is not a party other than a criminal proceeding, to testify or produce evidence about information or records obtained in the discharge of the auditor oversight body's duties.

Coming into force

13          This Act comes into force on the day it receives royal assent.

Explanatory Note

The Securities Act currently does not allow The Manitoba Securities Commission to recognize and regulate auditor oversight bodies or to designate credit rating organizations for the Act's purposes. An auditor oversight body would oversee the standards of practice and business conduct of auditors of issuers of publicly traded securities. A designated credit rating organization would issue ratings of the creditworthiness of securities to satisfy a requirement of the Act for such a rating. This Bill gives the commission the authority to do those things.

The Securities Act currently prohibits insider trading and similar unethical trading activities, but only with respect to securities that are subject to the Act's jurisdiction. This Bill extends the Act's prohibitions so that Manitobans are protected against unethical trading in securities that are issued outside Manitoba and are not otherwise subject to the Act. The Bill also generally updates the wording of the Act's provisions on insider trading and similar unethical trading activities and adds a new prohibition on making misleading or untrue statements that are likely to significantly affect the market price or value of a security.

The commission is given the power to issue a reciprocal order based on sanctions against a market participant in a jurisdiction outside Manitoba.

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