Methods of Achieving Goals of Securities Regulation

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1) Registration Requirement, 2) Disclosure Requirement, 3) Remedies for Breach of 1 and 2

1.2.1 Registration requirement

  • Licence people in the business
  • you cannot trade in securities unless you’re licensed (underwriters)
  • There are exceptions, e.g. can sell Canada Savings Bonds without registering (b/c it wouldn’t make sense  in the context to register; b/c they are so safe – unlikely Govt of Can will default)

POLICY: This helps ensure accountability, makes sure you are educated and policed –> fosters confidence in the market, and the exceptions are to provide efficient markets for securities that are considered to be very low-risk to the public. People will lose confidence if some whackos are selling you securities.

  • 1.2.2 Disclosure Requirement
    To protect investing public, must make sure they have full, true and plain disclosure of all material facts related to the company (adv/disadvantages, risks, contracts etc.) via a prospectus and continuous disclosure
    Note: there is an adv to being an investor in a public company –> the asset is easily liquidated but must have info to do so
    To provide info:
    1) Prospectus: comprehensive disclosure document – tells investor what they need to know to make an informed decision
    Also creates a cause of action for misrepresentations and omissions in a prospectus
     2) Continuous disclosure: once a company goes public, the company has continuing disclosure/reporting obligations which require the company must keep information current. Continuous  disclosure has 4 parts:
    a) Regular Financial Reporting
    b) Timely Disclosure (for material issues must file press release and amendment to prospectus)
    c) Insider Reporting (insiders must disclose when they buy/ sell shares to prevent insider trading)
    d) Early Warning (at a certain level of ownership in shares, need to tell the world how many you own and your intentions)

POLICY: need to protect investors, OSA is consumer protection legislation and in order to do that, we need to give you the information that you need to make an informed investment decision Exceptions to the Disclosure Rule

(i) the purchaser is sufficiently sophisticated (wealthy/ well resourced); (Private Placement)
(ii) the information is otherwise readily available; or
(iii) the securities are “safe” (Canada Savings Bonds)
POLICY: Need to balance the objectives of the efficiency of capital markets (would be inefficient to file a prospectus every time a company needs money) with the need to protect the public. Closed System & Resale Restrictions
When securities are acquired pursuant to one of the private placement exemptions and not pursuant to a prospectus, the resale by the initial investors of these securities to other investors on the secondary market
is restricted and certain conditions must be satisfied prior to their resale.
Conditions that must be satisfied prior to resale:
1. You issue a prospectus;
2. You sell pursuant to another private placement exemption;
3. You comply with the resale rules; or
4. You receive an exempting order from the Ontario Securities Commission

Policy: Transparency is key to the process

1.2.3 Remedies for Breach of Registration or Disclosure Requirements

  • If you don’t satisfy the requirements, there are remedies for the investor against you for breaches of these obligations
  • Remedies can be civil, criminal, or administrative (more detail below)
    Policy: investor protection and confidence in the market (fix something when it goes wrong)
    Now just a bunch of rules that play into one of these three objectives.
    Note: will also look at take-over bids
  • Overall protect shareholders of target company and make sure there is a level playing field
    • Make sure they have enough info to make an investment decision
    • Give them suff time to make that decision
    • Protect against company doing bad things

You can grab notes on other topics from here.


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