The Canadian Securities Administrators is publishing a set of rule and policy initiatives that would implement the passport system of securities regulation. However, the Ontario Securities Commission is not part of the plan and the B.C. Securities Commission is hesitant.

On Sept. 30, 2004, the ministers responsible for securities regulation in most Canadian provinces and territories signed a memorandum of understanding in which they agreed to an action plan. The plan called for best efforts to implement a passport system in certain areas of securities regulation by Aug. 1. The areas to be covered are prospectus requirements and clearance; registration process, requirements and related filings; continuous disclosure requirements; and prospectus and registration exemptions and routine discretionary exemptions.

Although the Ontario government did not sign the memorandum of understanding, the OSC participated in the development of the proposed instrument and amendments. However, the OSC is not publishing the proposal, but is making it part of the proposed amendments to existing registration and prospectus review rules.

The purpose of the proposed instrument and amendments is to implement a system that gives a market participant access to the capital markets in multiple jurisdictions by dealing with a principal regulator. The principal regulator will generally be the regulator in the jurisdiction in which market participant’s head office is located. Under the proposed system, a market participant will generally have the same principal regulator as under the mutual reliance review system (MRRS) established by CSA.

Ontario-based market participants, however, will not be able to rely on the exemptions contained in the proposed instrument, but will be able to use MRRS. The OSC will continue to act as principal regulator under MRRS.

An issuer which has a head office outside of Ontario that uses the OSC as its principal regulator (for example, a foreign issuer listed on the Toronto Stock Exchange) could select another jurisdiction to act as principal regulator and could rely on the exemptions in the proposed instrument. An issuer that has a principal regulator other than the OSC would continue to comply with Ontario securities laws to the extent that it participates in Ontario’s capital market, and would continue, when necessary, to file any relief applications with the OSC as its only non-principal regulator.

The CSA also notes that the BCSC is “generally concerned about the outcome of CSA discussions on the differences in the national and multilateral instruments covered by the proposed instrument.” The result of these discussions is that British Columbia issuers will not fully benefit from the BCSC’s streamlining initiatives if they participate in the Canadian capital markets outside British Columbia. So before deciding whether to adopt the principal regulator system, the BCSC will consider comments received on the proposed instrument and amendments as well as other instruments it is publishing for comment.

The initiatives are intended to simplify the regulatory system for issuers and registrants that have their securities traded or deal with clients in more than one Canadian jurisdiction. It notes that the proposed rule streamlines this process as much as possible under the current system.