In an effort to play catch-up with the rest of the country, Nova Scotia has recently enacted new securities legislation that provides greater protection for investors by forcing companies to spill the beans.

Under the new secondary market civil liability amendments to the Securities Act, investors no longer have to prove that they relied on misleading disclosure when buying or selling stock or other securities, says Nick Pittas, director of securities with the Nova Scotia Securities Commission in Halifax.

Changes to the act will also give the NSSC the power to order repayment of up to $100,000 in money lost through illegal or improper trading practices.

As a result, some investors will no longer have to undertake costly legal action to recover their losses. Now, all they have to do is prove such misleading material existed or that relevant information that should have been disclosed didn’t exist.

“Before, if an investor thought he or she was being fooled by company material and lost money,” says Ralph Shay, head of the securities law group with Fraser Milner Casgrain LLP in Toronto, “the investor had to prove to the court that he or she relied on that information when the investment was made.”

That reliance is no longer necessary in Nova Scotia, matching the situation in most other provinces. Ontario was the first to pass secondary market civil liability amendments in the form of Bill 198, which came into effect on Dec. 31, 2005. Alberta, Manitoba and Quebec soon followed suit. British Columbia has legislation on the books waiting to be enacted.

It’s likely more provinces will introduce similar laws. One reason for the collective approach is a resounding nudge from the Canadian Securities Administrators. A committee established by TSX Group Inc. — known as the Allen committee, named for its chairman, well-known securities lawyer Tom Allen — recommended the introduction of a secondary market civil liability regime about 10 years ago. The CSA subsequently accepted that recommendation and eventually developed a national model.

That model is at the heart of most legislation in the country, including Nova Scotia’s. That uniformity may partly account for the relatively easy passage of the bill through Nova Scotia’s house of assembly. Complexity accounted for the rest.

“It really passed through very quickly,” says Graham Steele, a New Democratic Party member of the assembly. “It’s so technical very few members of the legislature can talk about it comfortably.”

There was no discomfort, however, in not being at the front of the class when it came to passing the legislation almost two years after Ontario. “Nova Scotia simply isn’t a national leader in securities regulation,” Steele says, “and that shouldn’t surprise anyone.”

There is clearly an advantage in sitting back and taking stock of a situation — and the aftermath of newly proclaimed legislation. In the case of secondary market civil liability, that aftermath was rocky. The impact on the legal and financial communities was considerable. “People attached more significance to what it represented than how it turned out,” Shay says.

Much of the consternation has abated, he notes. Indeed, the first and only lawsuit to be launched in the wake of Bill 198’s passage in Ontario — against IMAX Corp. — is still winding its way through the courts.

Still, the Nova Scotia legislation is both important and timely, Pittas says: “The need for improved protection for investors buying and selling securities in the secondary market, in which more than 90% of securities trading takes place, has been gaining ground for some time.”

Equally important and timely are other securities amendments Nova Scotia has made. These enable the province to adopt provisions that harmonize and streamline securities legislation with all jurisdictions (except Ontario). A pillar of the agreement is the passport system for securities regulation.

“Once implemented, the passport system will allow market participants to access capital markets in the participating jurisdictions by dealing with one decision-maker,” says Pittas. “In general, the one in which the issuer has its head office or where an individual participant’s working office is located, [thus] applying one law.

“What this means is that for market participants,” he adds, “the existence of multiple securities regulators in Canada, outside Ontario, will no longer be an obstacle to accessing capital markets.”

Indeed, says Pittas, it will create a whole new landscape for securities markets: “What we are witnessing, incrementally and in stages, is the most significant harmonization and streamlining of securities regulation in Canada in the more than 70-year history of the CSA.” IE

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