Securities North and South
Canadian
Securities Research
In a “New York State of Mind”
Louis Mirando, Director, Library Services,
Torys LLP,
Toronto
Michael Hoffman, Librarian, Torys LLP, New York
CALL Annual
General Meeting
Niagara-on-the-Lake
Tuesday, May
27, 2003
CONTENTS
-
Securities Regulation
-
Basic Principles
-
Regulatory Agencies
-
Major Securities Laws
-
Canada
-
United States
-
Sarbanes-Oxley Act of 2003
-
Regulatory Agencies & Regulatory Materials
-
Canada
-
OSC Reformulation Project
-
United States
-
Sources
-
Canada
-
United States
-
Types of Disclosure Filings
-
Canada
-
Multijurisdictional Disclosure System (MJDS)
-
United States
-
Sources for Publicly-filed Disclosure Documents
-
Canada
-
United States
-
Precedent Research
-
Canada
-
United States
- We live in a
capitalist society; free enterprise is valued, and market participants
should have unobstructed access to capital.
- All investors must be
provided with equal access to capital markets.
- Investors require
timely, comprehensive information to provide them with the facts necessary
to permit them to make reasoned investment decisions
- Issuers may not
distribute securities unless an adequate level of disclosure is provided
about the securities, or unless the purchaser is deemed not to require
such disclosure (sophisticated purchaser of insider)
- Investors must be
protected from fraudulent or misleading behaviour or disclosure practices
by issuers.
- All persons and
entities purporting to act as agents for the purchase and sale of
securities and who provide investment advice must be appropriately
qualified to act in that capacity.
- When any of these
principles break is violated, a body or bodies must have appropriate
jurisdiction and powers to enforce securities regulations, to impose
sanctions, and to provide remedies to persons injured by the violation.
- Foster fair and
efficient capital markets
- Formulate
regulations (rules) and policy
- Monitor
continuous and timely disclosure by reporting issuers
- Review
prospectuses for new distributions (and grant exemptions from prospectus
requirements)
- Register
all individuals and entities who give advice about or trade in securities
(brokers/dealers)
- Investigate
possible violations of securities laws
- Conduct
enforcement proceedings before the Commission or a court
3. Major
Securities Laws
Canada
- In Canada, securities
regulation is a provincial jurisdiction
- Each province has its
own:
- Securities
Act
- Regulation(s)
- Forms (Schedules
to the Act and Regulation)
United States
o
Often
referred to as the "truth in securities" law, the Securities Act of
1933 has two basic objectives:
§
require
that investors receive financial and other significant information concerning
securities being offered for public sale; and
- prohibit deceit,
misrepresentations, and other fraud in the sale of securities.
- Regulates
the initial distribution of securities (registrations, IPOs,
prospectuses)
- Requires
full & fair disclosure of the character of securities sold in
interstate & foreign commerce
- Prevents
fraud in the sale of securities
- Requires
one-time disclosure prior to initial distribution
- Regulates
trading of securities after initial distribution
- Provides
for continuous disclosure by issuers of publicly-traded securities
- Created
the US Securities and Exchange Commission
- Provides
for regulation of securities exchanges operating in interstate &
foreign commerce
- Prevents
inequitable and unfair practices on such exchanges
- Trust Indenture Act of
1939
- applies to debt securities
such as bonds, debentures, and notes that are offered for public sale
-
Investment Company Act
of 1940
- regulates the organization of
companies, including brokers, dealers and mutual funds, that engage
primarily in investing, reinvesting, and trading in securities
-
Investment Advisers
Act of 1940
-
Sarbanes-Oxley Act of
2002
- “Blue Sky” laws (state
laws)
- regulate
“securities” (e.g., shares in a condominium) not marketed outside of one
state.
- All laws have
Regulations (referred to as Rules) issued by the regulatory agencies to
guide companies and their advisors in complying with the securities laws
II. Sarbanes-Oxley Act
of 2002
- Enacted with dispatch
by the US Congress in the summer of 2002, in response to several large and
high-profile corporate scandals (Enron, Worldcom, others)
- Imposes new duties on
public companies, their directors and executives, and their auditors
- CEO
& CFO certification of annual & quarterly reports
- Prohibition
of loans unavailable to outsiders
- Forfeiture
of executive bonuses and securities trading profits when there are
accounting restatements based on misconduct
- Accelerates
reporting deadlines for insider trades of company stock
- Prohibits
“improper influence” in conduct of audits
- Audit
committee independence and criteria
- Establishes
Public Accounting Oversight Board (PCOAB) to oversee auditing firms
- Auditor
independence
- More
and more timely disclosure of material changes
- Imposes
Rules of Professional Responsibility (17 CFR Part 206) for
attorneys representing public companies
- Requires
SEC and/or stock exchanges to adopt rules on analysts’ conflicts of
interest
- Lawyers
as gatekeepers
- For more information
about Sarbanes-Oxley, refer to the following Client Memos from Torys LLP,
which can be retrieved from the Torys website:
-
http://www.torys.com/publications/index.html
- CM2002-21T: To Keep Your Company Onside
Sarbanes-Oxley, Start Here (Sept. 19, 2002)
- CM2002-20S: The US Sarbanes-Oxley Act of 2002:
What Canadian Issuers Need to Know (Aug. 8, 2002)
Canada (Ontario)
- Consequence of Ainsley
Financial Corp v. Ontario (Securities Commission) (1994), 21 O.R. (3d) 104
- All Rules, Policies,
Notices, Blanket Orders, etc., are being redrafted as:
- Rules
(Binding, with the force of regulations)
- Policies
(Non-binding, for interpretation and instruction purposes only)
- Notices
(Non-binding, for giving notice of impending developments)
- Uniform numbering
system of all instruments
- All
instruments are organized by topic, and systematically and uniformly
numbered:
- E.g.,
National Instrument 14-101 (National Definitions)
- The
first digit of each instrument represents the Subject Matter:
- Procedure
and related matters
- Certain
capital market registrants
- Registration
requirements and related matters
- Distribution
requirements
- Ongoing
requirements for issuers and insiders
- Take-over
bids and special transactions
- Securities
transactions outside the jurisdiction
- Mutual
funds
- Derivatives
- •The second digit of each instrument represents the Sub-category
for subject matter (different for each subject matter):
- General
- Applications
- Filings
with securities regulatory authority
- Definitions
- •The third digit of each instrument represents the Type
of Instrument:
- National/Multilateral
Instrument (and any Companion Policy or Form)
- National/Multilateral
Policy
- CSA
Notice
- Concept
Release
- Local
Rule
- Local
Policy
- Local
Notice
- Implementing
Instrument
- Miscellaneous
- The
fourth-fifth digits of each instrument are for simple numbering purposes
(01-99)
- This
topical, uniform numbering system has been adopted and is being used by
all Canadian securities regulators except Quebec.
United States
IV. SOURCES
Canada
-
Butterworths
- Johnston,
David & Kathleen Doyle Rockwell, Canadian Securities Regulation,
3rd ed., 2003
- excellent
1-volume treatise
-
Carswell
- Alboini:
Securities Law & Practice
- Comprehensive
securities statutes and regulations for all provinces, regulatory
materials from all provincial securities commissions and stock
exchanges, and detailed commentary to the Ontario Securities Act
- SecuritiesPartner
CD-ROM
- CD-ROM
equivalent of the Alboini print service (above)
- Gillen,
Mark R, Securities Regulation in Canada, 2nd ed., 1998
- excellent
1-volume treatise
- Annual
consolidations (print)
- 1-volume
consolidations of the securities acts, regulations, and regulatory
(securities commission) materials for Ontario, British Columbia and
Alberta
-
CCH Canadian
- Canadian
Securities Law Reporter
- Print,
CD-ROM & online (web)
- Comprehensive
securities statutes and regulations for all provinces, regulatory
materials from all provincial securities commissions and stock
exchanges, and detailed commentary to the Ontario Securities Act
- Annual
consolidation (print)
- 1-volume
consolidation of the Securities Act, regulations, and regulatory
materials for Ontario
-
Quicklaw
- extensive
coverage of securities commission bulletins (decisions and regulatory
materials) for ON, BC and AB
-
WestlaweCARSWELL
SecuritiesSource
- the
single most comprehensive resource for securities research available;
includes complete statutes and regulations for all Canadian
jurisdictions, regulatory materials from all Canadian securities
commissions and stock exchanges, weekly securities commission bulletins
(ON, BC, AB), and Alboini’s commentary on the Ontario Securities Act
- this
is the only source that includes securities-related case law and tribunal
decisions integrated with
-
Ontario Securities
Commission Bulletin (OSCB)
- available
in print (from Carswell), CD-ROM (Carswell), and on the online (Quicklaw,
WestlaweCarswell)
- Commission Websites
- The
websites of the various Canadian provincial securities commissions
provide access to their securities acts, regulations, regulatory
materials, and weekly “bulletin” or “report”
United States
- CCH Federal
Securities Law Reporter
- Print,
CD-ROM & Online (web)
- Comprehensive
securities acts, regulations, and regulatory materials (releases, etc.)
from the SEC, updated weekly (7-volume loose-leaf)
- Includes
voluminous annotations from CCH editors
- Also
available in a reduced, 3-volume version (securities acts and regulations)
- West
- Bloomenthal
& Wolff, Securities and Federal Corporate Law (2nd
ed.), 1998+
- 9-volume
loose-leaf treatise (no legislation), updated annually
- Hazen,
Thomas Lee, Treatise on the Law of Securities Regulation, 1995
- excellent
3-volume treatise – recommended for any library
- Ratner,
David L., Securities Regulation in a Nutshell, 6th ed.,
1998
- superb
paperback-size introduction – recommended
- Ratner,
David L. & Thomas Lee Hazen. Securities
Regualtion: Selected Statutes, Rules and Forms. [annual]
- annual
consolidation of essential primary materials, attractively priced
- Securities
Law Series
- numerous
loose-leaf titles in series, covering all aspects of securities law
- 1-volume
consolidation of securities acts & regulations (soft-bound) – very
good value
- Aspen
- Securities
Act Handbook
- 1-volume,
loose-leaf consolidation of securities acts and regulations, updated
quarterly.
- Loss,
Louis & Joel Seligman, Securities Regulation, 3rd
ed., 1989+
- 11-volume
bound treatise (no legislation), annual supplement
- Loss,
Louis & Joel Seligman, Fundamentals of Securities Regulation,
4th ed., 2001
- 1-volume
“précis” of the above work
- Lexis
- comprehensive
access to all legislative and regulatory materials and case law
- Westlaw
- comprehensive
access to all legislative and regulatory materials and case law
-
Securities Lawyer’s
Deskbook
- collection
of primary resources (laws, regulations, etc.), free on the web, compiled
and maintained by the University of Cincinatti College of Law
-
RealCorporateLawyer.com
(R.R. Donnelly Financial)
- Websites: SEC, NYSE,
NASD, etc.
V. TYPES OF DISCLOSURE FILINGS
Canada
- Prospectus
- Required
for all initial distributions or trades
- Preliminary
vs. Final
- Long-Form
vs. Short-Form
- “Prompt
Offering” Prospectus (POP System)
- “Shelf
Offering” Prospectus
- Prospectus
Supplements
- Mutual
Reliance Review System (MRRS)
- Prospectus Exemptions
(The “Closed System”)
- Regulatory
exemptions, exemption by application to OSC
- Sophisticated
investors, Insiders
- Private
Placements (Form 20 Reports)
- Continuous/Timely
Disclosure
- Financial
Statements (Annual & Interim/Quarterly)
- Annual
Information Form (AIF)
- Management’s
Discussion & Analysis (MD&A)
- Annual
Report
- Insider
Report (SEDI)
- Early
Warning Report
- Material
Change Report
- Management
Proxy/Information Circular
Multijurisdictional Disclosure System (MJDS)
- Effective July 1,1991
- Permits qualified
Canadian issuers to file with the SEC and distribute to US investors
disclosure documents prepared and reviewed in accordance with applicable
Canadian law
- When the SEC adopted
MJDS, the Canadian Securities Administrators adopted MJDS for US issuers
in Canada Effective July 1, 1991
- Canadian issuers must
adhere to US GAAP (Generally Accepted Accounting Principles)
United States
·
Securities Act of 1933:
Initial listing requirements for new securities
o
Registration Statements (equivalent of Canadian prospectuses)
§
S-1: Initial
registration (prospectus)
§
S-2:
Simplified registration (simplified prospectus)
§
S-3:
Secondary offerings
§
S-4: Merger
or exchange
§
S-8: Company
securities (stock option plans, etc.)
§
F-1 to F-4:
Foreign issuers
§
F-7 to F-10:
Canadian Issuers (MJDS)
§
Exhibits
- Securities Exchange Act of 1934: Continuous disclosure
requirements for all public companies
o
Annual Reports
§
10-K
§
20-F (foreign issuers)
§
40-F (Canadian MJDS issuers)
§
Exhibits
o
Quarterly Reports
§
10-Q
§
6-K (foreign issuers)
§
Exhibits
o
Monthly Reports
§
8-K (material event)
§
6-K (foreign issuers)
§
Exhibits
o
Annual Report to Shareholders (ARS)
o
Proxy Statements
VI. SOURCES FOR PUBLICLY-FILED DISCLOSURE
DOCUMENTS
SEDAR
- “System for Securities
Electronic Document Analysis and Retrieval”
- Jointly administered
by the Canadian Securities Administrators (CSA) and the Canadian
Depository for Securities (CDS)
- Facilitates the electronic filing and public
dissemination of securities information by issuers, as required by the
securities regulatory agencies in Canada
- Allows free access by the public to all
documents the public to Canadian securities information collected in the
securities filing process, including prospectuses and continuous
disclosure documentation (annual reports, etc.)
Other sources for SEDAR
documents:
- CanCorp Documents (IHS
Micromedia)
- Subscription
service (not cheap)
- Includes
many documents (confirmations, etc.) not included in SEDAR (required
mostly for work by securities law clerks or agents)
-
Stockwatch
- comprehensive
“investor service”, including access to SEDAR filings, stock quotes for
Canadian exchanges, analytical services,
- this
is the only Canadian service that allows full-text searching of SEDAR
documents
- the
SEDAR document retrieval and full-text search functions are currently
“free” while in beta-test stage; this will probably eventually be a
subscription service.
EDGAR
- “Electronic Data
Gathering Analysis and Retrieval”
- Electronic filing of
all required forms and documents from 12/19/1994
- Foreign issuers
originally exempt; but, effective 11/4/2002, foreign issuers required to
file via EDGAR
Sources of EDGAR filings:
-
EDGAR Database
(Securities & Exchange Commission)
- Free,
comprehensive access to all EDGAR filings, with full-text search function
- Downloads,
especially tables, must be manually reformatted to fit normal-sized paper
-
LIVEDGAR (Global
Securities Information, Inc.)
-
pay-as-you-go or subscription
- Comprehensive
access to all EDGAR filings
- Sophisticated,
value-added search functions provided, especially the “Research Library”
of customized searches for precedent research
- Downloads
are easy and fast, formatted for standard paper size (8.5” x 11”)
- “pre-EDGAR”
- Lexis, Westlaw
-
10kwizard
- Free Edgar
- some
portions free, some subscription
- Company Websites
- Annual
reports (10-K), quarterly reports (10-Q) and Annual Reports to
Shareholders (ARS) can usually be found on the “investor relations” page
of most corporate websites.
VII. Precedent Research
Prospectuses, annual
reports, and other securities public disclosure filings have enormous
“precedent” value for securities and corporate practitioners.
Canada
There is currently
only one service that permits full-text searching of Canadian securities
public disclosure documents (from SEDAR):
-
Stockwatch
“SEDAR Search”
- the
SEDAR document retrieval and full-text search functions are currently
“free” while in beta-test stage; this will probably eventually be a
subscription service
- Stockwatch
provides a sophisticated Boolean, key-word, full-text search function of
SEDAR documents filed since 1999; there is also a menu-driven search
function; all documents are in pdf format
- this
service is in beta-test; searches often time out and must be re-executed,
and documents sometimes will not open
-
LIVEDGAR
- Coming
soon to Canada (July 31, 2003?)
-- see below for info about LIVEDGAR
United States
US
public disclosure documents are especially rich sources for precedent
research, because of the requirement that all material contracts (i.e.,
contracts materially affecting the filer’s financial status and
operations) must be appended to filings; these material contracts will
usually be found appended to the filings as “Exhibits”
- Lexis,
Westlaw
- Both
Lexis and Westlaw provide access to full-text EDGAR filings, with their
own proprietary search interfaces.
Especially on Lexis, there are special “files” of particular types
of documents (registration statements, 10-Ks, proxies, etc.). Most important are the separate files
of “Exhibits”, which are the richest source of precedent material for
corporate and securities practitioners.
-
LIVEDGAR
- Designed
specifically for the corporate and securities practitioner, LIVEDGAR
features comprehensive coverage of EDGAR public disclosure filings and
sophisticated Boolean keyword and menu-driven search interfaces, with a
variety of formatted print, download and email document delivery options
(pdf, html and text formats).
- Most
significant is LIVEDGAR’s Research Library of pre-formatted
precedent searches, which facilitate searching for and retrieving copies
of relevant precedent materials.
- LIVEDGAR
will soon also provide complete full-text search functionality for
Canadian SEDAR filings; expected release date is July 31, 2003.