Commission Approval of Rule: OSC Rule - 14-501 - Local Definitions

Notice of Commission Approval OSC Rule

le 23 mai 1997

NOTICE OF RULE UNDER THE SECURITIES ACT
RULE 14-501

DEFINITIONS

Notice of Rule

The Commission has, under section 143 of the Securities Act (the "Act"), made Rule 14-501 Definitions (the "Rule").

The Rule and the material required by the Act to be delivered to the Minister of Finance were delivered on May 22, 1997. If the Minister does not approve theRule, reject the Rule or return it to the Commission for further consideration, the Rule will come into force on August 8, 1997. If the Minister approves theRule, the Rule will come into force 15 days after it is approved.

Substance and Purpose of Rule

The Rule is intended to proved a consistent approach to interpretation of terms used in more than one rule, used in the Act and a rule or used in the Regulationand a rule. The Rule is also intended to provide a framework of terms, the definitions of which, the Commission has agreed upon for use in future rules.

The Rule sets out definitions for commonly used terms, such as business day, and definitions of terms used in more than one current rule, although not used asfrequently as some of the more general terms. This Rule is expected to be amended from time to time to add definitions of new terms that meet either of thesecriteria.

Summary of Rule

The Rule sets forth definitions of terms used in more than one rule for the purpose of interpretation of all rules in which it is used.

The Rule provides that a term used in a rule and defined or interpreted in section 1 of the Act, subsection 1(2) of the Regulation or subsection 1.1(3) of NationalInstrument 14-101 Definitions, will have the meaning given to it in the Act, the Regulation or the National Instrument, unless otherwise defined or interpreted inthe rule or the context otherwise requires.

The Rule contains definitions of terms in the Act or the Regulation that are defined other than in the general definition section of the Act or the Regulation so asto extend their application to the rules. It also contains definitions of terms that are different from those currently in use in the Act or the Regulation forspecified purposes.

The Rule also defines the term "derivative", which the Act allows the Commission to define for the purposes of the Act, the regulations and the rules. This Rulemay be amended from time to time to add definitions of other terms the Act allows the Commission to define.

Summary of Written Comments Received by the Commission

A draft of the Rule was published for comment in the Ontario Securities Commission Bulletin (1996), 19 OSCB 4895. The Commission received one commentletter in response to the Request for Comments. A comment letter received on Rule 91-504 Over-The-Counter Derivatives also referred to the Rule. A copy ofthe comment letter may be viewed at the office of Micromedia, 20 Victoria Street, Toronto, Ontario, (416) 312-5211 or (800) 387-2689. The following is asummary of the comments received and the Commission's response.

1. Definition of "Underlying Interest" and "Derivative"

A submission was made which suggested specific changes to the definitions of "derivative" and "underlying interest". The Commission agrees with thesubmission and has implemented definitions of "underlying interest" and "derivative" in accordance with the submission.

"underlying interest" means, for a derivative, the security, commodity, financial instrument, currency, interest rate, foreign exchanges rate, economic indicator,index, basket, agreement or benchmark or any other financial reference, interest or variable, and, if applicable, the relationship between any of the foregoing,from, to or on which the market price, value, or any payment obligation of the derivative is derived, referenced, or based; and

"derivative" means an instrument, agreement or security, the market price, value or payment obligations of which is derived from, referenced to, or based on anunderlying interest, other than a contract as defined for the purposes of the Commodity Futures Act.

2. Loan and Trust Corporations

The second comment concerned the definition of "Ontario financial institution". The definition of "Ontario financial institution" in the Rule is:

"Ontario financial institution" means a bank listed in Schedule I or II to the Bank Act (Canada), a loan corporation or trust corporation registered under the Loanand Trust Corporations Act, a credit union or league to which the Credit Unions and Caisses Populaires Act, 1994 applies or an insurance company licensedunder the Insurance Act.

It was recommended that the words "registered under the Loan and Trust Corporations Act" be deleted from the term and replaced with the words "authorizedto do business in Ontario". Making the change would parallel wording used in other sections of the Act and would reflect the uncertainty regarding the future ofthe Loan and Trust Corporations Act as well as requirements to register under it given the loan and trust reform initiative being undertaken by the Ontariogovernment.

The Ministry of Finance has advised Commission staff that no changes to the Loan and Trust Corporations Act are being contemplated at this time that wouldeliminate the requirements to register under the Act. As a result the Commission is of the view that it is advisable to leave the reference to the Loan and TrustCorporations Act in the Rule.

3. Other Changes Made

The Commission has deleted the term "special warrant". The term originally appeared in the Rule because a rule governing the distribution of special warrantswas to be adopted only in Ontario. It now appears that this rule will be adopted as a National Instrument, so the term will be defined in that National Instrument.

The definition of "offering memorandum" contained a reference to sections 2.4 and 2.11 of Rule 45-501 Exempt Distributions. The Commission has deleted thereference to those sections and that Rule because it has not yet published the Exempt Distributions Rule for comment. At such time as it publishes the ExemptDistributions Rule for comment, the Commission intends to amend the definition of "offering memorandum" to reinsert a reference to the Exempt DistributionsRule.

In addition the Commission made a number of other minor changes to the Rule.

Questions may be referred to:

Randee B. Pavalow

Policy Coordinator & Advisor

Ontario Securities Commission

(416) 593-8257

Rule

The text of the Rule follows.

Dated: May 23, 1997

ONTARIO SECURITIES COMMISSION

RULE 14-501 - DEFINITIONS

1.1 (1) Every term used in a rule that is

(a) defined or interpreted in section 1 of the Act has the meaning ascribed to it in that section unless it is otherwise defined or interpreted in the rule or thecontext otherwise requires;

(b) defined in subsection 1(2) of the Regulation has the meaning ascribed to it in that subsection unless it is otherwise defined or interpreted in the rule or thecontext otherwise requires; and

(c) defined in subsection 1.1(3) of National Instrument 14-101 Definitions has the meaning ascribed to it in that subsection unless it is otherwise defined orinterpreted in the rule or the context otherwise requires.

(2) In a rule, unless otherwise defined in the rule

"AIF" means an annual information form filed under Ontario securities law;

"broker" means a person or company that is registered under the Act in the category of broker;

"business day" means any day other than a Saturday, a Sunday or a statutory holiday;

"CFA" means the Commodity Futures Act;

"Chair" means the Chair of the Commission;

"clearing corporation" means an association or organization through which trades in options or futures contracts are cleared and settled;

"Commission member" means a member of the Commission;

"contractual right of action" means a right of action, against a person or company, for rescission or damages that

(a) is available to an investor to whom an offering memorandum containing a misrepresentation is delivered by or on behalf of the seller of securities referred toin the memorandum,

(b) is exercisable on notice given to the person or company against whom the investor has the right of action not later than ninety days after payment is made forthe securities or after the initial payment, if a payment subsequent to the initial payment is made under a contractual commitment assumed before, or at the sametime as, the initial payment,

(d) is in addition to any other right or remedy available at law to the investor;

"control person distribution" means a trade described in clause (c) of the definition of "distribution" in subsection 1(1) of the Act;

"convertible security" means a security that, by its terms, is convertible into, or exercisable or exchangeable for, or that carries the right to purchase or cause thepurchase of, another security;

"custodian" means a person or company that holds securities for the benefit of another under a custodial agreement or other custodial arrangement;

"equity security" has the meaning ascribed to that term in subsection 89(1) of the Act;

"financial intermediary" has the meaning ascribed to that term in subsection 204(1) of the Regulation;

"financial intermediary dealer" means a financial intermediary that is registered under the Act in the category of financial intermediary dealer;

"fully registered dealer" has the meaning ascribed to that term in subsection 204(1) of the Regulation;

"international dealer" means a person or company that is registered under the Act in the category of international dealer;

"investment counsel" means a person or company that is registered under the Act in the category of investment counsel;

"investment dealer" means a person or company that is registered under the Act in the category of investment dealer;

"issuer bid" has the meaning ascribed to that term in subsection 89(1) of the Act;

"limited market dealer" means a person or company that is registered under the Act in the category of limited market dealer;

"LSIF" means

(a) a labour sponsored investment fund corporation as defined in the Labour Sponsored Venture Capital Corporations Act, 1992, or

(b) a registered labour sponsored venture capital corporation as defined in the ITA;

"market intermediary" has the meaning ascribed to that term in subsection 204(1) of the Regulation;

"MD&A" means management's discussion and analysis of financial condition and results of operations prepared in accordance with Ontario securities law;

"mutual fund dealer" means a person or company that is registered under the Act in the category of mutual fund dealer;

"networking arrangement" has the meaning ascribed to that term in subsection 219(1) of the Regulation;

"offeree issuer" has the meaning ascribed to that term in subsection 89(1) of the Act;

"offering memorandum" means a document purporting to describe the business and affairs of an issuer that has been prepared primarily for delivery to and reviewby a prospective purchaser so as to assist the prospective purchaser to make an investment decision for a security being sold in a distribution to which section 53of the Act would apply but for the availability of one or more of the exemptions contained in clause 72(1)(c), (d) or (p) of the Act but does not include adocument setting out current information about an issuer for the benefit of a prospective purchaser familiar with the issuer through prior investment or businesscontacts;

"option" means an agreement that provides the holder with the right, but not the obligation, to do one or more of the following on terms or at a price establishedby or determinable by reference to the agreement at or by a time established by the agreement:

1. Receive an amount of cash determinable by reference to a specified quantity of the underlying interest of the option.

2. Purchase a specified quantity of the underlying interest of the option.

3. Sell a specified quantity of the underlying interest of the option;

"portfolio manager" means a person or company that is registered under the Act in the category of portfolio manager;

"principal shareholder", if used to indicate a relationship with a person or company, means a person or company that is the direct or indirect registered owner orbeneficial owner of more than 10 percent of any class or series of voting securities of the person or company;

"published market" has the meaning ascribed to that term in subsection 89(1) of the Act;

"Regulation" means Regulation 1015 of the Revised Regulations of Ontario, 1990, as amended;

"related mutual fund securities" means, for a registrant, securities issued by a dealer managed mutual fund if the registrant is or is an affiliate of the dealermanager of the mutual fund;

"RESP" has the meaning ascribed to "registered education savings plan" in the ITA;

"RRIF" has the meaning ascribed to "registered retirement income fund" in the ITA;

"RRSP" has the meaning ascribed to "registered retirement savings plan" in the ITA;

"scholarship plan dealer" means a person or company that is registered under the Act in the category of scholarship plan dealer;

"securities adviser" means a person or company that is registered under the Act in the category of securities adviser;

"securities dealer" means a person or company that is registered under the Act in the category of securities dealer;

"security issuer" means an issuer that is registered under the Act in the category of security issuer;

"selling group member" has the meaning ascribed to that term in subsection 219(1) of the Regulation;

"take-over bid" has the meaning ascribed to that term in subsection 89(1) of the Act;

"trust indenture" means a document by which an issuer issues securities and in which a trustee is appointed for the holders of the securities issued under thedocument;

"trustee" means a person or company named as trustee under a trust indenture;

"Vice-Chair" means a Vice-Chair of the Commission.

(3) For the purposes of the Act, the regulations and the rules,