Re: “National communication rule needs reform,” by Ian C.W. Russell (IE, October 2007).

Although we at the Securities Transfer Association of Canada agree with Russell’s conclusions that National Instrument 54-101: Communication with Beneficial Owners of Securities needs to be revised, we believe the column omits several serious issues that possibly result from the lack of application of the process requirements already set out in NI 54-101.

Contrary to what was implied in Russell’s article, NI 54-101 does not require registered dealers to send documents from reporting issuers to clients regardless of whether they want to receive this information. Based on amendments to NI 54-101 made in February 2005, beneficial holders are now given three choices, not two, for receiving materials when they open a brokerage account. They can elect to receive:

1. all security holder material sent by issuers;

2. only materials sent in connection with special shareholder meetings; or

3. no material at all.

Typically, the quantity of material printed by an issuer is driven by the above choices. For example, for a routine annual general meeting, much less material is printed and distributed compared with that for a contentious shareholder meeting that involves several special items. Although it’s true that an issuer can override investor choices, it is at the issuer’s expense, which means this decision is made only after careful consideration.

In addition, another safeguard is built into the system via NI 51-102: Continuous Disclosure Obligations. Under its provisions, issuers can ask investors on a yearly basis if they want to receive annual or quarterly reports.

It is our experience that the number of investors who respond positively to this question ranges from 2%-4%. Consequently, the number of annual and quarterly reports that are produced and mailed has fallen significantly.

Russell’s column also mentions clients holding many securities in their portfolios who continue to receive vast amounts of financial information. These inves-tors can opt to not receive any materials, even in connection with special meetings. And unless they request an annual report from each issuer, these investors will not receive these annual reports unless the issuer, at its own expense, decides to distribute said reports to all holders.

The column also mentions that clients with managed accounts do not need to receive materials due to the nature of their accounts. It is our experience that these accounts are typically coded in two ways at the dealer level. Either the investor receives no materials, as the investment advisor has discretionary voting authority; or the account is coded as an Objecting Beneficial Owner, which means that the investor objects to the disclosure of his or her name to the issuers of the securities he or she owns.

In the latter situation, financial materials are sent directly to these accounts by the dealer itself or through a third party. Issuers only have access, via NI 54-101, to investor information for Non-Objecting Beneficial Owners — those who have indicated that they do not object to providing their name to the issuers of securities they own.

The STAC supports Russell’s request for the Canadian Securities Administrators to conduct a survey to determine if current communication regulations meet inves-tor needs. The results of the New York Stock Exchange’s Proxy Working Group Investor Attitudes Study, conducted by Opinion Research Corp. in April 2006, clearly defined what investors understand about the proxy voting process and their OBO or NOBO status. The study’s findings indicated substantial ignorance about the proxy process and other issues. We believe that a similar survey in Canada would provide the same findings.

Russell maintains that such research would indicate investor dissatisfaction with material sent by issuers. However, the NYSE study indicates that 63% of U.S. investors open all proxy statements and read all, or some, of the information; and more than 40% always vote on the issues identified in the material. In addition, 64% of investors say they would opt for NOBO status after learning about the difference between the OBO status and the NOBO status.

As well, Russell failed to mention several issues in the column that require resolution, including the prohibitive cost for issuers to obtain NOBO information; the inability of an issuer to obtain a selective NOBO file that contains only the names of investors who are to receive materials; the increased complexity of the distribution process; the additional OBO delivery costs, if an issuer elects to mail directly to its NOBOs; and the ongoing concerns about overvoting.

@page_break@The Ontario Securities Commission has mentioned that the reassessment of NI 54-101 is a priority. We urge the OSC to bring this forward, to consult with all stakeholders and to implement a refined rule that clearly meets investor needs.

The STAC is committed to providing information to the OSC and the CSA that will assist them during the revision of NI 54-101.



Robert Mackenzie,

Director and Secretary Treasurer,

The Securities Transfer Association of Canada, Toronto