Cooperative Capital Markets Regulatory System’s Approach to Take-over Bids and Issuer Bids


As we have previously reported, the federal government and the governments of British Columbia, New Brunswick, Ontario, Prince Edward Island and Saskatchewan (Participating Provinces) have signed a memorandum of agreement in respect of a proposed cooperative capital markets regulatory system (Cooperative System). As part of this Cooperative System, existing provincial securities legislation will be replaced in the Participating Provinces with uniform provincial capital markets legislation, and complementary federal legislation will address matters within federal jurisdiction, including the management of systemic risk in Canada’s financial system. Drafts of the proposed cooperative provincial and federal securities acts—the Provincial Capital Markets Act (PCMA) and the federal Capital Markets Stability Act (CMSA)—were published for comment on September 8, 2014.
Given the scope of the new proposed legislation at both the federal and provincial levels, Blakes is publishing a series of bulletins regarding various aspects of the proposed Cooperative System. This bulletin addresses the proposed treatment of the take-over bid and issuer bid regime under the Cooperative System. For other bulletins in the series, click here.
In April 2006, the Canadian Securities Administrators collectively proposed to modernize and harmonize the regulation of take-over bids and issuer bids in Canada through the removal of the comprehensive take-over bid and issuer bid provisions from each jurisdiction’s securities legislation, and the adoption by each jurisdiction of a new national instrument (National Instrument 62-104 Take-Over Bids and Issuer Bids) setting out a common regime that would apply in all Canadian jurisdictions. This method of removing comprehensive provisions from the governing legislation in favour of delegating the power to regulate to securities regulators using their rulemaking powers is referred to as the “platform approach” to securities regulation. Under the platform approach, the general philosophy of securities regulation is set out in the legislation but the specifics are left to the regulators to determine, with the theory being that this will allow securities law to be nimble and more easily adaptable over time to changing circumstances, as changes will not need to be implemented through the legislative amendment process.
In 2007, each Canadian province and territory agreed to use the platform approach to take-over bid and issuer bid regulation, other than Ontario. In Ontario, it was decided that, rather than completely remove the comprehensive take-over bid provisions from the Securities Act (Ontario) (OSA), the same harmonization objective would be achieved by a combination of amending the take-over bid and issuer bid provisions of the OSA and implementing an Ontario-only rule (OSC Rule 62-504 Take-Over Bids and Issuer Bids), thereby keeping many of the provisions governing take-over bids and issuer bids in the Ontario Securities Act, meaning any changes thereto would be subject to legislative approval. The balance of the Canadian jurisdictions adopted the former National Instrument 62-104 as a renamed Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids (MI 62-104) and repealed sections of their respective securities legislation.
The result is that, substantively, the law governing take-over bids in Canada is currently harmonized, but two different methods were used to achieve that purpose.
In drafting the PCMA, a decision was made to use the platform approach for the regulation of take-over bids and issuer bids. As is the case currently with the securities legislation in the Participating Provinces other than Ontario, the draft PCMA includes very limited provisions relating to the regulation of take-over bids and issuer bids. The draft PCMA, essentially, mandates compliance with the regulations implemented by the multi-jurisdictional regulator under the Cooperative System, the Capital Markets Regulatory Authority (Authority). The substance of the regulatory regime—presumably including what will constitute a take-over bid or issuer bid, the required bid mechanics, early warning requirements and other matters currently covered by MI 62 104 in Canadian jurisdictions other than Ontario—will be found in the regulations implemented by the Authority, drafts of which have not yet been published for comment. On December 5, 2014, it was announced that the proposed initial regulations of the Authority will mirror the existing rules of the Participating Provinces (i.e., the initial take-over bid and issuer bid regulation should mirror MI 62-104).
Conceptually, using the platform approach supports the harmonization goal of the Cooperative System by centralizing the specific regulations regarding effecting a take-over bid or issuer bid with the Authority, rather than relying on the legislatures in each of the Participating Provinces to agree to amend their respective versions of the PCMA (the PCMA is proposed to be adopted separately in each Participating Province) whenever a change to the specific provisions is deemed necessary. While frequent changes to the current regime have not been an issue to date with the platform approach used in all of the Participating Provinces other than Ontario, such Participating Provinces have always needed to balance any desire to change the regime against the benefits of harmonization with Ontario, which does not have the same flexibility to change its current regime. Under the proposed PCMA regime, that will no longer be the case as Ontario is a Participating Province. It is unclear whether the absence of this factor will result in greater unpredictability.
With respect to the substance of the take-over bid and issuer bid regime under the Cooperative System, based on the announcement that the initial proposed regulations will mirror the existing rules of the Participating Provinces, we expect that it will be business as usual for take-over bids and issuer bids under the Cooperative System, however, that will not be able to be confirmed until the draft regulations are released, which is expected to occur early in the spring of 2015. It is also possible that meaningful changes to the regulation of take-over bids and issuer bids could be made as a result of the comment process on the proposed regulations.
The comment period for the proposed PCMA and CMSA closes on Monday, December 8, 2014.
For further information, please contact:
Markus Viirland 416-863-3097
Richard Turner 416-863-4026
or any other member of our Mergers & Acquisitions or Capital Markets groups.

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