Ontario Improves Investor Protection

Archived Release

Ontario Improves Investor Protection

Ministry of Consumer Services

Legislation Proclaimed Implementing Civil Liability For Secondary Market Disclosure QUEEN'S PARK, ON, Aug. 2 - The McGuinty government is strengthening protection for people who invest in the stock market. Beginning December 31, 2005, secondary market investors will have a statutory right to sue public companies that operate in Ontario's capital markets for misleading disclosure and failure to make timely disclosure. "Implementing civil liability for secondary market investors - where over 90 per cent of shares are bought and sold - is the right thing to do," said Gerry Phillips, Minister of Government Services and Minister responsible for securities regulation. "I'm proud that Ontario is the first Canadian jurisdiction to move forward on this." In the primary market - where shares are made available to the public, for example, as part of an initial public offering (IPO) - investors buy shares based on information contained in a formal disclosure document, such as a prospectus. Under the Ontario Securities Act, primary market investors already have a statutory right to sue if this information is false or misleading. "Public companies will have even stronger incentives to disclose accurate and complete information, and investors will have broader remedies to hold them accountable if that information is false, misleading or untimely," said Tom Allen, former chair of the Toronto Stock Exchange Committee on Corporate Disclosure. "This is a landmark in ensuring confidence in Ontario's capital markets. That's a good thing for investors and it's a good thing for public companies too." "The people of Ontario have a vested interest in improved investor protection," said Phillips. "Just about every person in Ontario has a stake in our capital markets through the Canada Pension Plan, RRSPs, other pension plans or personal investments. Those investors want - and deserve - to be protected." Implementing civil liability is one of the recommendations from the Ontario legislature's all-party Standing Committee on Finance and Economic Affairs (SCFEA), which tabled its report on the Five Year Review of the Securities Act in the legislature October 18, 2004. "We are ensuring Ontario benefits from a modern securities regulatory system, with strong investor confidence and protection," Phillips said. "Maintaining investor confidence in the integrity of our capital markets is vital for Ontario's competitiveness and a strong economy." Backgrounder ------------------------------------------------------------------------- CIVIL LIABILITY FOR SECONDARY MARKET DISCLOSURE Civil liability for secondary market disclosure means that more investors will be able to hold companies legally responsible for the accuracy and completeness of information they provide. As well, companies' responsibilities would extend to more of the information on which investors rely, for example, the financial statements and press releases that companies make public on an ongoing basis. Although the Securities Act currently makes it an offence for companies to provide inaccurate disclosure in required documents, the new provisions give investors broader rights to bring civil actions for damages suffered from relying on inaccurate information. Amendments were recently made to Regulation 1015 of the Securities Act to create definitions that are necessary for calculating damages under the new legislative provisions and also specify acquisitions and dispositions of securities that will be subject to the new secondary market civil liability provisions. Finalizing these changes has allowed the government to proclaim broader rights for secondary market investors to sue for misleading disclosure, the failure to make timely disclosure ("civil liability"), as well as specific prohibitions of misrepresentations, fraud and market manipulation. The legislative provisions and the regulation amendments that relate to civil liability for secondary market disclosure will take effect on December 31, 2005. The government has also made a number of housekeeping changes to update the regulation to reflect previous changes to the Securities Act and to Ontario Securities Commission (OSC) rules and policies. These changes will take effect on filing of the regulation. Definitions Civil Liability for Secondary Market Disclosure: A statutory right to sue public companies and other key parties (officers, directors and experts) when there is false or misleading information (or when required information is not disclosed) in materials that public companies disclose to investors on an ongoing basis. These materials include the company's annual and quarterly financial statements and the press releases that are issued by the company. Primary market: Where investors buy shares that are being sold to the public based on information contained in a formal disclosure document, for example as part of an initial public offering (IPO). - In the primary market investors generally buy shares from public companies. - Primary market investors rely on the information in formal disclosure documents such as a 'prospectus' in making their investment decisions. - These investors have a statutory right to sue for false or misleading information included in a prospectus or similar offering document, or if that document omits important information that was required. Secondary market: Everyday trading by investors in the shares of a public company - trading that is not part of a sale of shares to the public described in a formal disclosure document such as a prospectus. - In the secondary market investors generally buy shares from other investors. - Example: after a company's IPO, investors buy and sell the company's shares by placing orders with their brokers. Typically, the purchases and sales among investors are processed through stock exchanges. - Over 90 per cent of all equity trading in Canada occurs in the secondary market. - In making investment decisions, secondary market investors rely on information that public companies disclose on an ongoing basis (e.g. financial statements and press releases). - These investors now also have a statutory right to sue for false or misleading information companies disclose on an ongoing basis. - The government has now added specific prohibitions of misrepresentation, fraud and market manipulation. Prospectus: A formal document that offers to sell securities to investors and includes information that investors need to make an informed decision about whether or not to buy those securities. - Among other information, the prospectus includes the company's financial information and a description of its business, history, officers, operations, plans (including the use of the money being raised by the share sale) and the risks related to its financial projections. - Typically, a prospectus must be filed with securities regulators and given to prospective buyers of the offering. Disponible en fran├žais www.mgs.gov.on.caFor further information: Contact: Ciaran Ganley, Minister's Office, (416) 212-3547; Scott Blodgett, Ministry of Finance, (416) 325-0324