A recent and important decision of the Supreme Court of Canada provides guidance on certain Canadian corporate law requirements and the duties of directors of public companies in the face of competing stakeholder interests.

Proposed BCE Plan of Arrangement
In mid-2007, BCE Inc. (BCE) announced that it had entered into an agreement with a consortium led by Teachers’ Private Capital and others (collectively, Teachers) following an auction process involving competing acquisition proposals. The objective of the auction, as determined by a special committee of directors of BCE, was to maximize shareholder value while respecting bondholders’ contractual rights.

In early January, the Canadian press widely reported the continuing worldwide slide in capital markets. Everyone knows the news has not been good. As reported in the press, the Bank of Canada’s quarterly survey of companies across Canada found that business leaders expect sales growth to slow, prices of products to increase at a slower pace and the workforce to shrink this year. Obviously, company earnings may be negatively affected.

What’s wrong with promoting your company? Nothing – subject to ‘truth in advertising’ laws and other prohibitions on anti-competitive behavior, that’s what marketing is all about: promoting your company and the goods or services that it sells.

What’s wrong with promoting the securities of your company? Nothing again, so long as you follow the rules – and there are quite a lot of them. Laws relating to the promotion of securities can be categorized in two basic rules – the registration rule and the prospectus rule. These rules reflect key objectives of Canadian securities laws: investor protection, investor confidence and capital market efficiency.

To understand the two basic rules, you need to know the meaning of a couple of important terms used in securities legislation: “trade” and “distribution”.

A “trade” includes:

Two significant announcements were made recently that pave the way for Canada’s move to International Financial Reporting Standards (IFRS). The Canadian Accounting Standards Board (AcSB) confirmed that the mandatory changeover date from existing Canadian generally accepted accounting principles (GAAP) to IFRS will be fiscal years beginning on or after January 1, 2011. For companies with calendar year-ends this means that their first quarter results in 2011 will show an additional opening IFRS balance sheet and comparative financials for 2011 and 2010 prepared in accordance with IFRS. The other announcement was made through the release of a Canadian Securities Administrators (CSA) concept paper that considers possible changes to securities rules on acceptable accounting principles in light of the transition from existing Canadian GAAP to IFRS.

The concept paper explores some of the issues surrounding Canada’s transition to IFRS in view of amendments that may be required to National Instrument 52-107, Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107). It focuses on some pertinent issues relating to the Canadian adoption of IFRS. Two of these are discussed below.

Use of IFRS by domestic issuers before January 1, 2011
Many companies filing financial statements in Canada are either subsidiaries of overseas companies that have already adopted IFRS, or have subsidiaries already reporting using IFRS. For Canadian companies in either of these situations, adopting IFRS earlier than 2011 has some clear benefits. Currently these groups of companies track differences between Canadian and international reporting standards and need to keep two sets of financial information for local and group needs. The opportunity to align accounting policies of all the companies in multinational organizations would eliminate the need to track and remain up-to-date on two separate sets of accounting standards.

Canadian domestic issuers that are also SEC registrants may also be interested in early adoption of IFRS. The SEC’s elimination of the need for a reconciliation between IFRS compliant financial statements and U.S. GAAP makes the transition to IFRS extremely attractive for companies that must reconcile their Canadian financial statements to U.S. GAAP. Adopting IFRS early would allow these companies to prepare only one set of financial statements using an accounting model accepted in both Canada and the U.S., thereby avoiding the need for reconciliations.

Determining when merger negotiations need to be disclosed to the public can be challenging. Disclose too soon and your stock may be in for a roller coaster ride – a premature announcement can scuttle the deal if the news drives the stock too high, while news of negotiations that are subsequently abandoned can send your stock tumbling. If you wait too long and get it wrong, you may find yourself accused of failing to meet securities laws requiring timely disclosure of material changes. Investor relations professionals can now look to the recently released decision of the Ontario Securities Commission (OSC) In the Matter of AiT Advanced Information Technologies Corporation, Bernard Jude Ashe and Deborah Weinstein for guidance.

Securities legal counsel advise, generally, that merger negotiations need not be disclosed until a definitive agreement is reached. The OSC’s decision, in essence, supports this position and provides some useful guidance as to when merger negotiations must be disclosed as a “material change” under the Ontario Securities Act.

Mississauga, ON- Feb. 28, 2008- The Canadian Investor Relations Institute (CIRI) responded today to Finance Minister Jim Flaherty’s announcement regarding a model common securities act, and the creation of a panel of experts to study the issue, to be chaired by The Hon. Tom Hockin.

"We applaud the establishment of a panel to develop a model common securities act. The Minister's effort to create a Canadian advantage in global capital markets can only help Canadian issuers", said CIRI’s President & CEO Ian Bacque.

"CIRI looks forward to participating in constructive dialogue on this important issue", Bacque added.

About CIRI:

The Canadian Investor Relations Institute is a professional, not-for-profit association of executives responsible for communication between public corporations, investors and the financial community. CIRI is dedicated to advancing the stature and credibility of the investor relations profession and the competency of its members. CIRI has over 800 members across Canada, and Chapters in four provinces (QU, ON, AB, and BC). More information is available at www.ciri.org

The federal government is launching a comprehensive review of Canada’s securities regulations. Finance Minister Jim Flaherty recently announced that a blue-ribbon panel will be chaired by The Honourable Tom Hockin, a former federal cabinet minister and most recently the President of the Investment Funds Institute of Canada (IFIC). The committee is tasked with developing a model common securities act, and will report back to the Minister by the end of this year. CIRI will be following the committee’s work closely, and will be discussing this initiative with our Issues Committee. This is a welcome development, with the goal being greater harmonization and to “create a Canadian advantage in global capital markets.”

To read the news release, visit:
English http://www.fin.gc.ca/news08/08-018e.html
French http://www.fin.gc.ca/news08/08-018f.html

Is your company frustrated with Canada’s current securities regulatory system? Would you prefer a simpler, faster and cheaper securities regulatory system for Canada – in place in just over one year? If so, you can look forward to Phase 2 of the passport system for securities regulation.

Richard Carpenter finds that new SEC reforms ease the burdens on non-US issuers

This special feature for international companies was commissioned by Citigroup Depositary Receipt Services

The SEC has spent the last two years putting together a series of reforms designed to liberalize the securities offering process in the US and respond to changing issuer needs.

The securities offering reform package came into effect on December 1, 2005. Later that month, the ‘kinder, gentler’ SEC also proposed new rules to make it easier for non-US issuers to deregister from the US markets (see Deregistration proposal.

What does the reform package mean for foreign companies trying to access the US market? The simple answer is: pretty much the same thing as for US companies. The reform package was developed with US issuers in mind and, as such, does not directly distinguish between US and non-US issuers. Any liberalization aimed at US companies equally applies to those accessing the market from overseas. However, what it should do is make it easier for certain types of non-US issuers, for example, to expand rights offerings into the US market via an improved shelf registration process.

‘The new reforms provide clarity of definition and a level of flexibility that we expect will be welcomed by non-US issuers,’ says Nancy Lissemore, global head of Citigroup Depositary Receipt Services. ‘Particularly with provisions such as the new automatic shelf registration and the enhanced communication opportunities, these new rules will help some of the larger non-US issuers expand their depositary receipt (DR) offerings – including rights offerings – directly into the US.’

The new rules will also make the IPO process quicker and simpler for issuers that meet certain criteria. The reforms tidy up several messy loose ends that were increasingly making US offerings cumbersome relative to other international markets.

‘They make the communication process surrounding an offering a good deal more flexible and, crucially, recognize that real-world disclosure does not always fit into neat legal boxes,’ explains Patricia Brigantic, director and counsel for Citigroup Depositary Receipt Services. ‘The SEC has long been aware that its strict offerings regime, designed to protect investors’ interests, can – ironically – prevent the sort of fluid, open, transparent disclosure that might aid those very same investors. The new reforms aim to address many of those concerns.’

Bruce Bennett, a partner at law firm Covington & Burling, notes that there has been ‘an important philosophical shift’ ltat the SEC that can be seen in these rule changes. ‘The SEC is moving from a transaction-based regulatory system to an issuer-based system, based on company registration,’ he says.

The new system revolves around several key reforms designed to introduce more practical elements to offerings. These include:

Issuer segmentation
Issuers are segmented into four areas depending on their past and present behavior. Crucially, the reforms create a new segment of issuer called a well-known seasoned issuer, or WKSI for short. WKSIs are the main beneficiaries of much of the reform package. The SEC defines WKSIs as: ‘A new class of issuer that is current and timely in its Exchange Act reports for at least one year and has either $700 mn of worldwide public common equity float held by non-affiliates or has issued $1 bn of non-convertible securities, other than common equity, in registered offerings for cash (excluding exchange offers) in the preceding three years. Finally, the issuer must not be an ineligible issuer.’

In essence, the SEC is making the offering process significantly easier for companies that have been through this sort of process before and have demonstrated an ability to abide by the rules. As long as they comply with the rules, WKSIs are not subject to all of the cumbersome checking procedures inherent in most offerings and will be able to take advantage of much quicker routes to market. Other segments introduced in the reforms include seasoned issuers, unseasoned issuers and non-reporting issuers.

Improved shelf registration
Key to this liberalized environment are new shelf registration procedures whereby WKSIs can simply preregister a range of offerings so they are ready to go as soon as the issuer and/or market is ready. The new automatic shelf registration available to WKSIs does not require SEC review.

Les Silverman, a partner at Cleary Gottlieb in New York, notes that, as issuers and underwriters become familiar with this new tool, ‘it should become the dominant technique for large issuers to access the market.’

Liberalized communications environment Many experts believe that communications during the offering process had become unnecessarily restricted. Richard Baumann, a partner at Dorsey & Whitney in London, notes that the US restrictions on issuers’ communications were ‘rather more demanding and restrictive than anywhere else in the world. You couldn’t engage in a number of forms of communication that most people outside of the US would think of as part and parcel of a routine offering process. These reforms change a substantial part of that.

Easing restrictions
While it would be wrong to suggest that the SEC has completely liberalized the communications environment for registered offerings, it has now gone a long way toward creating more of a ‘real-world’ situation, especially for WKSIs. The SEC has allowed them to communicate more easily with investors by easing the application of the so-called gun-jumping provisions in the Securities Act.

These gun-jumping provisions are aimed at stopping companies from conditioning the market for an offering before registration by providing information outside of the prospectus, or by not providing all of the required information in a statutory prospectus.

Going forward, issuers are allowed to engage in a range of oral and written communications with potential investors at any time during a registered offering, with WKSIs getting the broadest license to communicate and new IPO issuers the least (but still more than under the old rules). Standards for written communication are more flexible due to a new free-writing prospectus, to encompass any ‘written’ communication in the offer that lies outside the main prospectus.

These reforms, combined with further liberalization of prospectus requirements, mean the securities offerings process for WKSIs and certain other issuers is now far simpler, cheaper and quicker to administer. The new environment is expected to help many non-US companies that have previously withheld follow-on or rights offerings from the US market, particularly issuers that now fall under the WKSI definition.

‘The change in the rules means non-US companies that are also WKSIs will find it much easier to make rights offerings available directly to the American depositary receipt (ADR) holders,’ observes Miguel Perez-Lafaurie, director of account management at Citigroup Depositary Receipt Services. ‘This potentially expands the opportunities for our client companies to access the US market.’

Despite the undoubtedly positive impact of the reforms, Baumann cautions non-US issuers to remember that they generally apply to registered offerings only. They do not usually cover offerings made under Rule 144A or Reg S exemptions. Nor would a Level I ADR program be affected by the package – it is only Level II and Level III programs, with registration of the underlying securities or a full listing in the US, which benefit.

‘We’re all hoping the SEC will do another round of housecleaning and cover these exemptions in the future,’ says Baumann. ‘Basically, the SEC took on the harder job first.’ He points out that there is no distinction in the reforms between DRs and the underlying securities. They are, in effect, the same thing as far as these reforms are concerned.

Communications reforms
So what were the SEC’s main intentions in developing these regulations? Brigantic says the commission wanted to ensure the offering regulations took a more practical view of the world. ‘The reforms have brought the regulations up to date,’ she explains. ‘They now take into account the fact that electronic communications have changed the way issuers disseminate information to investors. That’s particularly important for non-US issuers accessing the US market.’

Before the new reforms, there was a paradox: investors and the SEC were calling for more information from issuers, yet the rules and regulations surrounding securities offerings often severely limited what issuers could actually say outside of their registration statements.

The new communication reforms introduce a new class of regulated communication – a free-writing prospectus – that will help WKSIs (and certain other types of issuers) communicate around an offering. A free-writing prospectus is simply any written offering material other than the statutory prospectus. It may take any form and does not have to meet the strict information requirements of statutory prospectuses.

information in the statutory prospectus, but it does give a company the freedom to communicate around an offering. The key lies in how the SEC defines the communications that may comprise the free-writing prospectus:

* More than written communication is included. The SEC has made it clear that free-writing prospectuses may include printed or broadcast communication as well as graphic communication in any form of electronic media.

* Oral communications are excluded if they are live in real time. This covers live roadshows (including simultaneous slides), live telephone calls and live webcasts. It also, for example, covers a live presentation that has to be transmitted to an additional room for reasons of space.

The new regulations clarify the SEC’s requirements for electronic roadshows in a number of ways. For example, communications that are not delivered live in real time but are recordings of a presentation are considered to be graphic, ‘written’ communications, and therefore fall under the definition of the free-writing prospectus.

However, a live presentation is not considered to be graphic communication – and is therefore not a free-writing prospectus. The difference here is small but important: a live webcast is not a free-writing prospectus, but a recorded webcast archived on a company’s web site would fall under the definition of a free-writing prospectus.

The thinking behind this is that it enables a company to file one copy of a roadshow presentation as a free-writing prospectus. The company can then rest relatively safe in the knowledge that any further live presentations of the same material – even with slides – are counted as an oral communication and therefore do not require further filing.

As long as the information being communicated remains complete and accurate, this should give much greater freedom to talk off-the-cuff in a roadshow presentation.

Specific benefits
The nature of the reforms is such that non-US issuers are not granted any special advantages. However, what they have done is put the regulations more on a par with the sort of regulatory environment that non-US companies might be used to in their own home markets. In legal terms, this means WKSIs may now communicate orally – or through a free-writing prospectus – outside of the registration statement at any time.

Most issuers can now also rely on a new safe harbor to communicate to the market more than 30 days before filing a registration statement without fear of violating the gun-jumping provisions.

The following are details of some of the specific benefits non-US issuers can expect within the new securities offering regulatory environment:

Expanded communications opportunities prior to an offering The WKSI definition combined with the new safe harbor mentioned above will make it a lot easier to talk to investors and the media in the run-up to an offering. Previously, many worldwide markets have had far more relaxed regimes than the US in this respect. The new rules mean the US environment is now more similar to other worldwide markets than before, making it a lot easier for issuers to give press and investor briefings and respond to media inquiries prior to and during the offering process.

But, as Silverman cautions, ‘companies are, of course, still liable if the information is not accurate. The new rules allow a WKSI to talk to the press whenever it wants during an offering, but that information must still be complete and accurate. It’s worth bearing in mind that a lot of time is spent putting together a prospectus. There’s a reason for that: it ensures it is complete and accurate.’

More clarity and freedom on electronic roadshows The reform package was designed to make it much easier for companies to brief investors during an offering using the roadshow format. The definitions described above allow companies the room they need to address investor concerns, safe in the knowledge they are not breaching registration requirements.

The free-writing prospectus option means companies are allowed to file key roadshow materials as a base. However, the oral communication definition that applies to live events means firms are also free to speak to a live audience in a less restricted fashion than before – as long as they do not seek to misguide the audience relative to the filed information, of course.

‘This may seem like a fine legal line but it does actually make it much easier to communicate in a roadshow environment during an offering,’ Brigantic notes. ‘The SEC has formulated the definitions in a practical fashion to take into account the nature of likely audiences and the way in which most companies want to communicate with their investor audiences.’

Relaxed definition of a quiet period
The old rules dictated that a quiet period was needed once a decision had been made to proceed with an offering but before the registration statement was filed. It basically ruled out any oral or written communication in the run-up to an offering.

The new rules codify existing safe harbors for the release of factual business information and forward-looking information by all issuers. This in turn allows issuers to continue to release normal business information at any time before or during an offering on the basis that this information has nothing to do with the offering process.

The reform package has also created a ‘30-day bright-line exclusion’. This, in effect, means any communication made by the issuer more than 30 days prior to filing a registration statement will be excluded from the gun-jumping restrictions.

Silverman points out that this makes it easier for, say, a foreign private issuer in the run-up to its IPO to do an interview with a US business magazine. ‘Under the old rules that would have been very risky,’ he explains. ‘Now you can do it, though you shouldn’t mention the offering and you should also check when the interview is going to be published to ensure it will be at least 30 days prior to filing the registration statement.’

Greater flexibility in distributing research
Although previous safe harbors meant brokers could disseminate certain research reports during an offering, the SEC has decided to permit much greater freedom on the research distribution front. The changes follow stricter regulations on analyst conflicts of interest in, for example, the Sarbanes-Oxley Act and the global analyst research settlement.

The reforms make it much easier for brokers participating in an offering to distribute research reports relating to an issuer as long as they can show they might reasonably have done so during their normal course of business. The result? A much less restrictive environment for the publication of research in the run-up to and during an offering.

This should benefit all types of issuers, even if they do not fall under the WKSI definition. ‘It offers an expanded ability to communicate at a time when companies want to talk to their existing and potential investors,’ says Perez-Lafaurie.

Most market participants seem to agree that the securities offering reform package introduces a lot of practical help for issuers in terms of the potential speed of an offering as well as the communication surrounding it. ‘These new reforms should make the offering process much easier and more reflective of real-world interaction between issuers and investors in the US market,’ Lissemore points out.

The reform package does not mean, however, that the US market is any less strict in terms of how it views inaccurate information. Nor should it be viewed as some sort of golden ticket that allows SEC-reporting issuers to bypass the disclosure and governance requirements imposed in recent years by regulation such as Sox.

Once you take into account the commission’s new recommendations, however (see Deregistration proposal), there is a definite trend toward the SEC making it easier and less risky for non-US companies to access the US market

Roles and responsibilities
The new securities offering reforms do not substantially change the nature of the offering process in terms of advisory roles – they merely enhance the speed associated with an offering and the communication surrounding it.

What they might do, however, is put more responsibility onto an issuing company relative to its underwriters and legal advisers. Why? Simply because there is more scope for ad hoc communication during an offering process, which would previously have been totally governed by the prospectus.

The advent of the free-writing prospectus means offering communications become more fluid and disclosure more open. While this is to be welcomed in terms of the sharing of information, it puts extra responsibility onto the issuing company to ensure such communication is ‘complete and accurate’. Yes, underwriters and their legal teams will review free-writing prospectuses, but in order to take advantage of the nature of the reforms, such documentation is unlikely to undergo the same absolute rigorous attention to detail that accompanies the traditional statutory prospectus.

The new rules are, after all, supposed to ease the communication process, not make it more difficult. The rules have been made more explicit so it will be easier to determine which type of information falls into which category.

Beate Melten, director – IR counsel at Citigroup Depositary Receipt Services, describes how it all affects the role of the IR officer: ‘IROs will have to ensure they are aware of the regulations and can brief their management teams on what they mean.’

Melten points out that companies need to understand what constitutes a free-writing prospectus and should have some form of structure in place to determine what material qualifies under the new definitions. ‘Companies need to think about how they are going to control the release of information in the run-up to and during an offer,’ she explains. ‘The reforms have made the communication process that much easier, but they will also create new responsibilities on the issuer side.’

Deregistration proposal Some non-US issuers have been reluctant to access the US market in the past because of the difficulty of exiting the Exchange Act registration and reporting system. Companies generally can deregister from their US reporting requirements only if they have fewer than 300 US-resident shareholders – often a difficult factor to determine for a large company. That can mean an issuer has to continue with its US reporting obligations even though there is little US interest in the stock.

In mid-December 2005 the SEC announced proposals that, if adopted as law, would make it easier for foreign issuers to deregister if they meet certain criteria. These include lack of issuer activity in the US for the previous twelve months (measured by trading volume thresholds) and having another main listing in another market for at least two years. The proposals also simplify the methodology for counting US ownership and permit good faith reliance on an independent service provider that in the regular course of business assists in the collection and determination of numbers of shareholders and related information.

‘These proposals go a long way toward easing the concerns of foreign issuers that want to access the US market but don’t want to take on reporting obligations they have no means of terminating,’ says Patricia Brigantic, director and counsel for Citigroup Depositary Receipt Services. ‘Put these together with the securities offering reforms and I believe the US market looks more attractive for non-US issuers keen to access the immense pool of capital that we have in the US.’

For more information contact: Stephanie Bleecher
E-mail: stephanie.bleecher@citigroup.com
Phone: +1 212 816 6639
Web site: www.citigroup.com/adr

Thanks to IR Magazine for allowing us to bring this article to you.

Mike Reilly says the SEC’s new chairman is a tech head

Twin moves on the technology front late in 2005 were warning shots for any company filing with the SEC. In fact, they’ll have profound effects throughout the securities markets.

In October 2005 the SEC called for an update on the state of XBRL handling mechanisms. XBRL is a software language that makes every number in a document easily identifiable. Unlike a paper document or even an electronic PDF, XBRL lets you find, compare and analyze information at computer speeds. The SEC said it wanted to see what the state of play is on this subject, both to understand the landscape and to uncover new technologies it could put to work.

One of the goals of XBRL – or of an alternative, should one exist – is to give commission staff the ability to analyze company data more rapidly and to identify problems, including fraud, more rapidly and more cheaply. But to get to that point, they have to know what tools are available.

Meanwhile, the SEC has said it is time for a new contract for Edgar, the commission’s database of filings. It was heralded as a major step forward when first brought into play nearly 20 years ago, but is now quite long in the tooth. Fortunately, this is understood by the man heading up technology at the SEC: chief information officer Corey Booth.

Leading the charge
‘Government is usually at the trailing edge: as long as everyone else is doing it, we’ll do it, too,’ notes ex-McKinsey consultant Booth. ‘Now we are a lot closer to leading the charge.’ Booth arrived at the SEC in 2004, just as the commission was showing real interest in what XBRL can do. He is cagey about details of the new SEC push but his boss, chairman Christopher Cox, is far from a wallflower when it comes to using the latest technology.

Cox is new to SEC leadership but he has taken a very active role in promoting and pushing for what the commission likes to call ‘tagged data’: a speech at a fall meeting of the Securities Industry Association urged filers to get into XBRL. Another, at a joint meeting of the American Institute of Certified Public Accountants (AICPA) and the SEC in December praised the accounting industry’s leadership, and even a televised address to technocrats gathered in Tokyo talked the deep mumbo-jumbo of XBRL implementation. This all reveals a technically hip regulator.

‘He sits in on a lot of our meetings,’ says Booth. Having the boss at the table when tech issues are being chewed over is the sort of thing that marks the difference between leading edge and simply riding in the wake of advanced companies in the corporate world. At a government agency, it is almost unheard of.

In addition to ‘getting it’ when it comes to the advantages of using XBRL, Cox knows there is a big bonus for the SEC. Among the onerous rules that grabbed headlines under Sarbanes-Oxley is a requirement that the SEC audit all listed companies once every three years, causing a major drain on staff and the budget. The new automated software processing will massively streamline that.

Freeing up the human and financial capital also means more resources to apply to the task of finding fraud and acting on it. Thus, when fully implemented, a new Edgar with XBRL will mean a commission with more teeth.

Beating the drum
All this makes some observers say a real sea change may be at hand after years of circling the issue. Accountants and some international bodies have been active in pursuing XBRL but the vast majority of US companies have been slow to act. Fewer than a dozen have been involved in the SEC’s test of XBRL filings, begun last April.

But change is in the air. ‘We have spent the last year laying the core technology in Edgar, as well as pursuing the rule-making and beating the drum to get more momentum, increasing the number of filers and getting industry behind it,’ explains Booth.

IR officers may well hear the message from their company secretary or finance department. In December the president of AICPA, Leslie Murphy, told a joint SEC-AICPA meeting, ‘Over the last year we have focused attention on how XBRL actually improves registrants’ communications and connection with their investing public. The question you should be asking yourself is, Why would my company not support making investors better informed? Next year, we should be reporting that hundreds of companies are filing using XBRL.’

Frank Fernandez, chief economist at the SIA, was there when Cox made a call for action at the late fall SIA meeting in Boca Raton. ‘This is a migration that has been going on quietly for years,’ Fernandez says. ‘Yes, I think we will see companies in their hundreds using XBRL for filing by the end of 2006.’

Faster, easier, cheaper
Cox is noted for his can-do work on Capitol Hill. And he knows how to make people sit up and take notice. While his evangelical work on XBRL includes points about speed, efficiency and usefulness of data that can be parsed by computers, he also throws in a line that grabs C-level attention. ‘It can make it easier, less expensive and less time-consuming for companies – and their accountants – to comply with SEC reporting requirements. It is not mere wishful thinking that interactive data would make it possible for a significant part of the 404 work to be automated,’ Cox told a Washington gathering.

At a time when 404 requirements, which companies have complained are very costly to meet, are starting to become somewhat more routinely seen as a cost of doing business, Cox’s pointed comment on savings isn’t likely to be ignored. But just how fast will things get moving? The new contract for Edgar will be awarded by mid-2006. Obviously getting the replacement system underway will take more time. But the SEC could move more quickly on XBRL rule-making, perhaps getting it parallel to the technical development.

In a November news release, Cox said: ‘During the next twelve months the SEC will move beyond the Edgar concept of electronic filing of paper-based forms to an interactive data concept in which investors can have instant access to data that’s ready to use in many software applications on their desktops.’

No-one at the SEC will be drawn on when XBRL filings might become mandatory, but change is in the air. While vested interests often obstruct new initiatives if they fear closer perusal or added costs, the commission says its early feedback is encouraging. ‘I don’t think we have any political problems,’ says Booth. ‘The issue is how to proceed, not whether. The day I will know we have won is the day you have hedge funds making money in trades from SEC filings.’

by Mike Reilly

Thanks to IR Magazine for allowing us to bring this article to you.

The pace of governance regulation slowed down considerably in 2006. In light of the frenetic pace of change in the prior two years, this was welcome news for many issuers. Among the most significant developments was the decision of the Canadian Securities Administrators in March 2006 not to adopt a Canadian version of the much criticized SOX 404. The widely held view that the benefits derived from SOX 404 have not been commensurate with costs of compliance contributed to the decision of the CSA to proceed with Proposed Multilateral Instrument 52-111 in March 2006. Some form of reporting on internal controls is expected to be introduced in the future and, in the meantime, the requirement that the CEO/CFO certificate speak to the design of the internal controls remains in place. The CSA Staff Notice 52-316 addresses certain questions on this provision.

“The Halloween massacre” is how Anne-Marie Buchmuller describes the day Finance Minister Jim Flaherty changed the tax rules governing income trusts. The head of IR for Calgary-based Sound Energy Trust had only been on the job for two weeks when the Minister dropped his tax bombshell and sent the market into a tailspin. The surprise announcement translated into a $20 billion drop in the S&P/TSX composite index on November 1 with sharp losses for the trust sector, which has yet to recover.

“We have had many calls from investors, mostly retail, who are very upset – they lost a lot of money,” reports Buchmuller. “Shock and outrage is the best to describe how our investor base has reacted,” adds David Carey, Senior Vice President, Capital Markets for ARC Energy Trust. “We lost 25% overnight and are still down 20% a month later. A lot of people were caught unaware; our phone lines lit up and email system overflowed with questions from unitholders.”

Mike Reilly looks at the ‘other’ over-the-counter market as the Pink Sheets launches a US version of Aim

There’s a new wrinkle in the fabric of the markets – one that may bring an alternative for US investors hungry to own more international shares and for foreign issuers eager to raise their profile but unwilling to take on the costs of SEC registration, exchange listing requirements and Sox compliance.

The Pink Sheets – or the Pinks, as it is known on Wall Street – dates back almost to the beginning of the 20th century. It has traditionally been seen – and still is by many today – as an outdated paper-based quotes arena for a wide array of shares – and mostly dicey penny stocks at that.

But under the stewardship of a savvy New York area native named R Cromwell Coulson, the Pink Sheets has become a robust contender for the attention of many companies, including western Europeans who have recently shied away from the US.

With a snappy internet venue for its now all-electronic quotations, the Pink Sheets has steadily added features to make the market attractive to all constituents – issuers, market-makers and, most importantly, investors. Its quotes are distributed by all the major vendors, from Reuters to Bloomberg. Now it plans an elite quotation that will require high levels of disclosure, though not as high or as extensive and expensive as those required by SEC registration.

Here comes OTCQX
The Pink Sheets’ new OTCQX is touted as being similar to London’s Alternative Investment Market (Aim) in its structure, and Coulson has created a chart on the new web site (www.otcqx.com) showing the parallels. The chart also shows how the new service will stand out from both the Pink Sheets and the OTC Bulletin Board, on which many over-the-counter stocks are posted under the aegis of NASD.

The bottom line for non-US companies is that by backing a US quote of their stock listed, say, in London or Frankfurt, a ready market is presented for US investors. Such quote generation is done by market-makers, typically broker-dealers, who simply begin to make a market in a given stock and then post their bid and ask prices. This may come from their own belief that interest is out there, or it could be generated by institutions that let the dealers know they want to see prices.

Companies like Nestlé, Roche and Heineken already trade on the Pink Sheets and enjoy US visibility without the high costs of Sox regulations or registration and listing fees. ‘Look at consumer brands with US employees, with big US customer bases,’ says Coulson. ‘If you are Volkswagen, you want people who buy your cars to be able to buy the shares easily. It increases the number of repeat customers.’

The overall move in European markets toward greater transparency and best practice in disclosure plays directly into the new OTCQX proposition. By offering a venue that guarantees only companies with strong disclosure habits and regular financial reporting that meets its listing standards, the OTCQX hopes to attract more investors and well-regarded issuers, regardless of size.

More varied IR
The new service will create three tiers of companies, with the highest level of well-qualified firms having to hit several marks in addition to regular financial reporting and good disclosure. Added criteria include management certifications, quarterly reporting and the appointment of a ‘designated advisor’ – a kind of monitor to ensure compliance.

Since there is no exchange listing and the requirements of SEC filings are limited to matching those of companies’ home countries, there can often be a certain relaxation of IR among Pink Sheets stocks. There is no retail component to IR for Roche, for example, since its shares are mostly owned by institutions and it does not seek retail investors in the US. Then there are the special situations, which abound on the Pinks. Owens Corning, driven to bankruptcy by asbestos lawsuits, moved over to the Pink Sheets while working itself out of its problems.

Sox pushed some US companies onto the Pinks along with foreign ones. Moving off the American Exchange shortly after Sox came over the horizon was a strategic choice for the Ziegler Companies, a Midwestern financial services firm with billions of dollars in business and billions more under management for clients.

‘I immediately perceived Sox as highly problematic from an expense and management point of view,’ says Ziegler CEO John Mulherin. ‘Requirements for new board committees, Section 404 compliance, extra auditing – all these combined to create a task we could not afford. We decided to de-list and deregister.’

But unlike Owens Corning and others who almost seem to be hiding on the Pinks, Ziegler cares a lot about its shareholders and their perception. ‘We made a lot of calls, wrote letters and had conversations with shareholders, clients, employees and other constituents. We spent a great deal of time explaining to people how to use the Pink Sheets,’ Mulherin recalls. ‘It was important we be very clear about our views on corporate governance and transparency.’

Did the move to the Pinks pay off? ‘The effort was endorsed by shareholders, who saw that we were saving capital and guarding profits. The stock price appreciated by 10 percent,’ the Ziegler CEO states.

Foreign companies unwilling to take the expensive and rules-strewn path of a full exchange listing may be encouraged by the new ‘premium’ OTCQX. After all, Federal Reserve figures show non-US stocks represented just shy of 16 percent of US portfolios at the end of 2005 – a record level, but one that leaves a lot of room for growth.

by Mike Reilly
Thanks to IR Magazine for allowing us to bring this article to you.

In September, the Canadian Securities Administrators (CSA) issued a report on findings and recommendations arising from its second targeted continuous disclosure review of business income trust issuers. The report posted some rather dim results, given that of the 45 income trusts issuers reviewed only seven had no identified deficiencies in their continuous disclosure. The CSA once again identified the presentation of non-GAAP measures as a significant issue. The report followed on the heels of the publication of a revised staff notice on Non-GAAP Financial Measures. The revised staff notice narrows the definition of what is acceptable disclosure of non-GAAP financial measures. This article will explore the impact of these revisions so that IROs can better evaluate the use of non-GAAP measures in their MD&As.

Whenever you try to launch a major new process, unexpected issues arise – and Sarbanes-Oxley Section 404 proved no exception. As public companies and their auditors grappled with the complexities of the new internal control rule the first time around, some things got way out of control – especially costs and resources.

SYDNEY -- In an unprecedented move, the Australian Securities and Investments Commission (Asic) has announced it is investigating Australia's largest company, the national telecommunications carrier Telstra, for alleged breaches of continuous disclosure.

The announcement has shocked the Australian market, which is still reeling from a comment by one of the company's top executives, Phil Burgess, that he 'wouldn't recommend them [Telstra shares] to my mother.'

In a statement released to the market yesterday, Asic said it was 'investigating Telstra's compliance with its continuous disclosure obligations following its announcement to the market yesterday signalling an earnings downgrade.'

Asic also confirmed it is working with the Australian Stock Exchange in relation to this matter. The alleged breach being investigated by Asic concerns a briefing document Telstra released to its major shareholder, the Australian government, before the wider announcement of its earnings downgrade to the market.

Leaked extracts of the document appeared in newspapers before Telstra issued its downgrade last week, prompting the investigation. However, it is likely to be some months before Asic releases findings from its investigation.

Under new powers it was awarded on January 1 this year Asic can now issue fines to companies in breach of continuous disclosure laws.

NEW YORK -- Just shy of its fifth anniversary, the most restrictive disclosure rule in US history was dealt a blow yesterday when a Manhattan judge dismissed an SEC claim that California-based Siebel Systems violated Reg FD.

LONDON -- There are strong concerns that a new move by European securities regulators to ensure consistent application of international financial reporting standards (IFRS) could result in price-sensitive information leaking out to the market.

Within weeks, the Committee of European Securities Regulators (CESR) is planning to launch a pan-European database where local regulators will be able to record details of IFRS enforcement actions for future reference. The idea behind the move is to encourage a uniform enforcement of the standards by enabling European regulators to see how their peers have resolved comparable enforcement cases.

However, one senior technical partner and IFRS expert at a top global accounting firm has expressed strong reservations about how the database would be protected and confidentiality ensured. 'In principle, it's a good idea for CESR to help IFRS enforcement be as consistent as possible, and to have a level playing field for all,' says the expert, who declines to be named. 'My concern is how it's going to ensure this information will be kept confidential and not fall into the wrong hands.'

The size and reach of the database would make it extremely difficult to monitor who has access to it at a national level. 'If you consider that price-sensitive information is going to be made available across 25 countries, we can imagine how difficult it will be to keep this information confidential,' adds the expert. 'This could result in enormous damage to companies.'

MUMBAI -- 'Alternate' directors appear to be a growing phenomenon in India's boardrooms. While other countries have them, the latest annual reports suggest they have become exceptionally common here. In fact, the Economic Times of India reports that there are now alternate directors at 65 companies on the Bombay Stock Exchange's BSE 500.

Whenever you try to launch a major new process, unexpected issues arise – and Sarbanes-Oxley Section 404 proved no exception. As public companies and their auditors grappled with the complexities of the new internal control rule the first time around, some things got way out of control – especially costs and resources (see box, page 49).

Following extensive review and consultation and in view of the delays and debate underway in the U.S. over the rules implementing section 404 of the Sarbanes-Oxley Act of 2002, the Canadian Securities Administrators (CSA) announced last week their decision not to proceed with proposed Multilateral Instrument 52-111 Reporting on Internal Control over Financial Reporting (MI 52-111).

Two recent court decisions, in Canada and the U.S., bring some welcome news to issuers considering their potential liability for timely disclosure. These take on a special importance now that Ontario’s new laws on civil liability for continuous disclosure have taken effect.

Amendments to Ontario's Securities Act are coming into force on December 31, 2005. Stikeman Elliott's comprehensive 90-page guide to the changes, Litigation Unleashed, is available to help you prepare.

Effective June 30, 2005, the British Columbia Securities Commission along with most Canadian Securities Commissions adopted National Instrument 58-101 Disclosure of Corporate Governance Practices and National Policy 58-201 Corporate Governance Guidelines. The adoption of NI 58-101 and NP 58-201 fundamentally alter the manner in which reporting issuers must conduct and report their corporate governance practices and procedures.

Effective September 14, 2005 the Canadian Securities Administrators ("CSA"), which represents the securities regulators of each of Canada’s thirteen provinces and territories, adopted National Instrument 45-106 Prospectus and Registration Exemptions. NI 45-106 is now in force throughout Canada and it consolidates virtually all of the prospectus and registration exemptions previously provided by securities laws across the country.

The Securities Transfer Association of Canada (STAC), of which CIBC Mellon Trust Company is a member, has released the 2005 version of Proxy Protocol. These guidelines have become an important reference document for Transfer Agents, issuers, lawyers and other industry participants.

The fact that issuers listed on the TSX Venture Exchange are exempted from some of the new continuous disclosure requirements and certifications doesn't mean that their timely disclosure obligations are any less than of TSX-listed companies. Venture issuers also have some special extra disclosure obligations.

Under Canadian securities legislation,insiders of a reporting issuer must report purchases and sales of securities of the reporting issuer within a specified time period (generally,within 10 days after the transaction).In most provinces,an insider includes each director and senior officer of the reporting issuer and of each subsidiary of the reporting issuer,each director and senior officer of an affiliate of an insider of the reporting issuer,and,for issuer bids,the reporting issuer itself.

As many public corporations complete the first financial reporting and proxy season following the introduction of National Instrument 51-102, Continuous Disclosure Obligations, and National Instrument 54-101, Communication with Beneficial Owners of Securities of a Reporting Issuer, the practical implications of these two instruments are becoming clear: while the process has become more complex, it is presenting the opportunity to practice highly targeted, strategic investor communications.

The Canadian Securities Administrators have extended the deadline for stepped-up certification required from CEOs and CFOs.

We, the staff of the Canadian Securities Administrators (the CSA), have recently received a number of questions in relation to “management” cease trade orders that may be issued as a consequence of the failure by a reporting issuer to file financial statements in a timely manner. We have compiled a list of the most frequently asked questions (the FAQs) and have set out our responses to such questions below.

Washington, DC, March 24, 2005--The Commission today charged Flowserve Corporation, a manufacturer of precision-engineered flow control equipment headquartered in Irving, Texas, with violating Regulation FD and Section 13(a) of the Securities Exchange Act of 1934. Regulation FD prohibits issuers from selectively disclosing material nonpublic information to certain persons -- securities analysts, broker-dealers, investment advisers and institutional investors -- before disclosing the same information to the public. The SEC also charged its Chief Executive Officer, C. Scott Greer, and Director of Investor Relations, Michael Conley, with causing Flowserve’s violations.

On February 15, 2005,the Ontario Securities Commission approved OSC Rule 48-501 - Trading During Distributions, Formal Bids and Share Exchange Transactions(Rule 48-501) and Companion Policy 48-501CP. Rule 48-501 restricts trading by issuers, dealers and certain related persons during distributions, take-over bids, issuer bids, amalgamations, arrangements and similar transactions (Offering Transactions) and is intended to preclude manipulative conduct by those with an interest in the outcome of such transactions. Rule 48-501 also effectively creates safe harbours to permit prescribed trading and promotional activity during Offering Transactions without risking breach of the Securities Act (Ontario) (and parallel Universal Market Integrity Rules imposed by Market Regulation Services Inc.). Upon coming into force, Rule 48-501 will replace paragraph 26 of OSC Policy 5.1 and OSC Policy 62-601 – Securities Exchange Take-Over Bids -Trades in the Offeror’s Securities, both of which restrict trading during Offering Transactions. If the Minister of Finance does not reject Rule 48-501 or return it for further consideration, it will come into force on May 9, 2005. For our analysis and discussion of earlier versions of Rule 48-501, please see http://www.blakes.com/english/publications/.

March 11, 2005 - Toronto - The Canadian Securities Administrators (CSA) are releasing a nationally harmonized set of continuous disclosure (CD) requirements for investment funds. The instrument harmonizes CD requirements for investment funds among Canadian jurisdictions and replaces most existing local CD requirements.

TORONTO – The Ontario Securities Commission (OSC) has issued a rebate of $15 million in fees to market participants, representing a portion of the regulatory costs they have paid during the last two years. The rebate reflects stronger than expected revenues under the OSC’s new fee structure.

On March 2, 2005, the US Securities and Exchange Commission (the "SEC") extended by one year the compliance date for non-U.S. issuers and non-accelerated filers regarding the rules it adopted pursuant to Section 404 of the Sarbanes-Oxley Act.1 The extension is effective immediately.

February 18, 2005 - Toronto - The Canadian Securities Administrators’ (CSA) is requesting new members to join the Mining Technical Advisory and Monitoring Committee (MTAMC).

Please be advised that on Feb 4 the Canadian Securities Administrators (CSA) released their revised 52-109 - Certification of Internal Controls for comment.

The Canadian Society for Corporate Secretaries (CSCS), in collaboration with the Toronto Stock Exchange (TSX), are pleased to present a series of cross-country roundtable discussions on:

They’re Baaack!
Newsline January 2005 Volume 15 Issue 1 Update on Securities Regulation

Staff at the OSC has advised that for this proxy season, Canadian securities regulators will not object if a company continues its past practice - that is, sending the meeting materials and the glossy annual report to shareholders in one mailing within 140 days of its financial year-end. The annual financial statements and annual MD&A must, however, be filed within 90 days of the end of the financial year (120 days for venture issuers).

Companies have been asking whether the new accelerated deadline for filing annual financial statements and annual MD&A affects the date for sending meeting materials and the date of the annual meeting. Staff of the Ontario Securities Commission has advised us that for this proxy season, Canadian securities regulators will not object if a company continues its past practice - that is, sending the meeting materials and the glossy annual report to shareholders in one meeting within 140 days of its financial year-end. The annual financial statements and the annual MD&A must, however, be filed within 90 days of the end of the financial year (120 days for venture issuers).

January 14, 2005 – Toronto, ON -- The Canadian Securities Administrators (CSA) issued guidance today on disclosure of retirement benefits that goes beyond the disclosures required in securities regulation. The guidance was issued to assist issuers that choose to provide additional disclosure in identifying items that could be disclosed, as well as the assumptions used to derive the information, in a form that is clearly presented for the benefit of investors.

January 7, 2005 --Calgary, AB-- The Canadian Securities Administrators (CSA) are proposing to streamline the short form prospectus system to more fully integrate the disclosure systems for the primary and secondary markets and to update the current rules. The proposed changes are designed to allow issuers to efficiently access the capital markets by depending increasingly on their existing continuous disclosure record. The proposed rule also contemplates broadening access to the short form prospectus system to allow more issuers to benefit from the streamlined system.

On December 3, 2004, the Ontario Securities Commission (OSC), together with the other members of the Canadian Securities Administrators (CSA) adopted National Policy 41-201 - Income Trusts and Other Indirect Offerings.

When the SEC comes calling
Canadian officers and directors may know what's expected when the Ontario Securities Commission is investigating, but they should not assume things are the same when dealing with the U.S. market regulator

Update on Securities Regulation column from Newsline Volume 14 Issue 4 – July 2004

Lead article from Newsline, Volume 14 Issue 4 - July 2004
... the lines are drawn in a battle that you can expect to see played out over the coming months and perhaps years. In the U.S., the Business Roundtable, the American Society of Corporate Secretaries and other business groups are lobbying the SEC to unmask beneficial holders (see 'World Context'). In Europe, the European Commission is said to be preparing a system similar to American 13F filings. And in Canada, which is held up as a model for change, issuers still grumble about the unwieldy and inadequate system of NOBOs and OBOs...

Proposed Multilateral Instrument 51-104 Disclosure of Corporate Governance Practices and Form 51-104F1 are an initiative of the British Columbia Securities Commission, Québec's Agence nationale d'encadrement du secteur financier, and the Alberta Securities Commission.

The Securities Act requires the Ontario Securities Commission (OSC) to deliver to the Minister, and to publish in its Bulletin by June 30 of each year, a statement by the Chair setting out the proposed priorities for the Commission for its current financial year.

Attached is the OSC's Draft for Comment followed by CIRI's Response.

Newsline Volume 14 Issue 2 March 2004

Among the many new corporate governance requirements, one is intended to bring home to chief executive officers and chief financial officers the importance of their own personal responsibility for accurate disclosure.

Update on Financial Reporting column from Newsline, Volume 14 Issue 2 - March 2004
In December 2003, National Instrument 51-102, Continuous Disclosure Obligations, was released as final. Although this rule pertains to all continuous disclosure documents, some of the more substantial changes relate to quarterly reporting.

Lead article from Newsline, Volume 14 Issue 2 March 2004.

Companies that used to grumble about the Toronto Stock Exchange’s guidelines for good corporate governance are facing a far more onerous regulatory regime now that Canadian securities administrators have drawn up a set of rules that, when passed, will bear the full force of law.

A number of significant changes in disclosure rules will take effect in 2004. As the year begins, here is an update on the status of these measures, which have been gestating for a very long time.

Canadian securities regulators are implementing a new rule, National Instrument 51-102 Continuous Disclosure Obligations, that stipulates faster reporting deadlines; additional MD&A and AIF requirements; the elimination of mandatory delivery of financial reports to shareholders; and the filing of business acquisition reports, among other things.