General Policy of Securities Regulation

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For the exam:
1) Know what the rules are;
2) Look at why they exist (why does the law regulate these activities? What objectives is the rule trying to establish?);
3) THEN Challenge the rules

  • Always keep in mind that he wants you to answer WHY it is that you’re doing what you’re doing
  • WHY does the law regulate this particular activity? (will mostly have to do with achieving the three above goals/dealing with tensions among those goals)
  • Securities reg is nothing more than sophisticated consumer protection legislation with the consumer being investors.
    o The Securities Act is really a policy document where intention is the most important thing.
    o The rules that the SA sets out are intended to be appropriate in the circumstances in which they are employed.

3 types of policy statements
o OSC Policy –> info about how the Ontario Securities Commission will decide
o Uniform Act –> provinces of BC, Alberta, Saskatchewan, Manitioba and Ontario
o National –> all of the Securities Commission get together and say how they’re going to use their discretion

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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

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Three Goals of Security Regulation – Law School Notes

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Three Goals of Securities Regulation
3 purposes:
1) Protection of investing public;
2) Ensuring the Efficient Operation of Canadian Capital Markets;
3) Increasing and Maintaining Public Confidence in Capital Markets / In the Persons and  Institutions Operating Them

Found in s.1.1 of the Ontario Securities Act (OSA) under the purposes of the act! The purposes of the Act are (a) to provide protection to investors from unfair, improper or fraudulent practices; and (b) to foster fair and efficient capital markets and confidence in capital markets

Danier case: The securities act is remedial legislation and is to be given a broad interpretation (Pezim). It protects investors from risks of an unregulated market, and by its assurance of fair dealing and by the promotion of the integrity and efficiency of the capital markets it enhances the pool of capital available to entrepreneurs.
The act supplants the buyer beware mindset of the common law with the compelled disclosure of relevant information… at the same time, recognizes burden it places on issuers and Part XV sets limits on what is required to be disclosed…
(para 32) – Binnie J

1. Protection of investing public
Should not protect public against loss, but ensure that public has knowledge needed to make a decision about the company – assurance that its losses are genuine economic losses (correct pricing via prospectus)
b. Very high-level consumer protection legislation

2. Ensuring the Efficient Operation of Canadian Capital Markets
Ensure capital markets facilitate mobility and transferability of financial resources and provide facilities for continuing valuation of financial assets
b. Achieved through a free and open securities market with regulator correcting for market failure
i. More info prevents problem of adverse selection in the market (drive out high quality securities, leaving only low quality securities which would be a misallocation of financial resources)

3. Increasing and Maintaining Public Confidence in Capital Markets/In the Persons and Institutions Operating in Them
Investors will be WTP more for new issues of securities in primary market if confident they will be able to sell securities fairly on secondary market (want to know its fair, you can make money!)
b. With investors paying more for new issues, more savings would be channelled into investment, thereby improving allocation of financial resources (see goal #2)
c. Creating confidence in market, adverse selection is overcome – of assured of accuracy of info, investors WTP more, therefore, higher qual securities more likely to survive
*However, reg must not be at excessive cost (therefore, tension between protecting investing public and eff capital markets)


  • Certainty in almost every circumstance is a bad thing, takes away judgment
  • judgment is what we need to make the right decisions
  • The Securities Act –> don’t care what act actually says, care what it ought to say or intended to say. Don’t care about geniuses that spend lives devising schemes to get around SA (Securities Act). Securities regulators or courts say you’re  smart, but who cares… if you’ve done something you think outsmarts securities act, they’ll shut the door on you = no smart guys.


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Securities Regulation – Law School Notes

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These notes cover Securities Regulation in Canada.

The best material to have an in-depth understanding of Capital markets irrespective of what jurisdiction you are based in. Especially helpful if you are an Indian law student due to lack of good material covering the fundamentals. OCRed text, might suffer from few readability issues.

Five aspects of continuous disclosure:
(1) Regular disclosure (quarterly/annually);
(2) timely disclosure (of material changes);
(3) Early Warning (if buying up 10%- could signal takeover bid);
(4) Insider Reporting (allowed to trade, but we want to know what you’re doing);
(5) Insider Trading (to keep things fair, can’t do)
Want to make sure investors are protected and a fundamental tenet of that Is disclosure Companies change, and people are still trading on secondary market, the info from prospectus goes stale (to ensure ppl buy on primary market, must maintain efficiency of secondary market)

  1. Policy Behind Continuous Disclosure Regime – Merger Report (3 objectives)
  2. PART I: Regular Disclosure
    1. Application to Reporting Issuers
    2. Obligation to File Financial Statements
  3. PART II: Timely Disclosure (of changes)
    1. Statutory Provision: Ontario Securities Act (OSA), Part XVIII – Continuous Disclosure
    2. Material Change vs Material Fact
    3. What must be filed with a material change (3 Report Options)
  4. PART III: Early Warning
    1. STEPS
  5. PART IV: Insider Reporting
    1. Analysis: When do insider reporting rules apply?
  6. PART V: Insider Trading

(1) Trading: You cannot sell with insider information and
(2) Tipping: you cannot tell anyone else about that information 

  1. Policy Discussion about Insider Trading / Tipping Prohibition
  2. Steps
  3. Statutory Provisions (OSA)
  4. Meaning of Generally Disclosed (Defence)
  5. Defences to Insider Trading / Tipping
  6. Actions, Sanctions & Penalties for Insider Trading

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