Securities Regulation

1
Securities Regulation

• Canadian Business Law I
• Lecture 10
• November 23, 2007

2
Securities Regulation Introduction

• Historical development of Securities Regulation
• Provincial subject in Canada
• What is a security? Pacific Coast Coin Exchange
  v. Ontario Securities Commission
• Purpose and administration of Securities
  Regulation
• Investor protection
• Market efficiency and development
• Role of Self-regulating Organizations (SROs)

3
The Mechanics of Securities Regulation

• Caveat emptor the earlier principle
• Four elements of Securities Regulation
• Registration and licensing of participants
• Disclosure
• Regulation of specific aspects e.g. insider
  trading and takeovers
• Investigation and enforcement

4
Registration Licensing

• Intermediaries must be registered with the
  regulator e.g. Ontario Securities Commission
• Licensing must fulfill requisite conditions of
  education and training
• Registration must be current
• Conduct of trading
• Trade with clients and pump and dump S. 380
  of the Criminal Code
• Price guarantees and promises of refund
  prohibited under provincial Securities Laws

5
Disclosure

• Disclosure of information enables investors to
  make buy/sell decisions
• Disclosure both at the time of issue and
  continuing
• At the time of issue
• Prospectus
• Short-form prospectus
• Exemptions
• Continuing disclosure quarterly and annual
  reports
• Electronic filing and disclosure SEDAR
• Liability for providing false or misleading
  information

6
Special Regulation

• Insider trading
• Proxy voting and solicitation
• Takeover bids
• Investigation and enforcement

7
Insider Trading

• Trading based on undisclosed information
• Special relationship with the company United
  States v. Stewart (2004)
• Imprisonment and fine under provincial Securities
  Laws
• Federal crime S. 382.1 of the Criminal Code

8
Proxy Voting Solicitation

• What is a proxy? allows agents to vote
• Importance in corporations
• Proxy solicitation
• Information circular
• Restrictions must be clearly stated on the proxy
  form

9
Takeover Bids

• Ensure that control premium is equitably
  distributed
• Trigger limit - 20 percent of the securities of a
  class
• Target companys board of directors must respond,
  either positive or negative
• Purchase to be made proportionately from the
  offerors

10
Investigation and Enforcement

• Both the regulators and SROs have powers of
  investigation and enforcement
• SROs suspension of membership, delisting,
  deregistration
• Provincial regulators cease-trading orders,
  calling for documents
• Prosecution, penalties and civil liability
  provided in the statutes