Securities are negotiable financial instruments sold by issuers (corporations or entities to be invested or who creates securities for sale in public or private markets) which would represent ownership over the said issuer for its capitalisation. The most common securities are stocks which represent ownership over the issuer; or bonds to represent a creditor-debtor relationship between the issuer and a public corporation or entity.
Corporate and securities lawyers essentially guide issuers through the laws which govern securities in a particular country. In Canada, the legal practice of a securities lawyer would depend on the province and territory where the operation of the issuer is located.
Securities Law in Canada
Canada does not have a single law pertaining to securities or financial instruments. Hence, it follows that Canada also does not have a single federal securities regulator or securities commission. Common law has also dictated that legislation and regulation regarding securities is exclusive to the Canadian provinces and territories.
Thus, Canada’s laws on securities are promulgated and enforced by each of the 10 provinces and 3 territories. These provincial or territorial Securities Acts and regulations then established their own securities regulator – or Securities Commission – whose jurisdiction is only within the province and territory itself. Although there are different types of securities, all of which are regulated by these laws on securities.
These provincial and territorial securities regulators then formed the Canadian Securities Administrators (CSA) for coordination purposes and to harmonise the regulation of securities across Canada.
Securities Lawyers in Canada
Securities lawyers in Canada guide clients with the provincial and territorial laws governing the purchase and sale of securities or financial instruments. The legal practice of securities lawyer is both transactional and litigious, in relation to the specific provincial and territorial Securities Acts and the regulations promulgated by their respective Securities Commissions.
It is important to note that these are highly dependent upon your province. You will want to hire an a corporate securities lawyer in Ontario for those that live there, etc.
Transactional
The work of securities lawyers starts when investors and the issuers have started negotiations and entered an "investment contract” or securities agreement. Generally, Canadian issuers are required to file a prospectus with the governing provincial or territorial securities regulator before any transaction is completed. This prospectus is likened to a disclosure document which provides for the issuer’s corporate details and the details on the securities being sold. Securities lawyers may represent the investors to evaluate the financial stability of the issuer based on this prospectus to ensure that it is worth the investment and all the risks that comes with it.
Securities lawyers may also assist issuers themselves in filing these prospectuses. Provincial and territorial Securities Acts require issuers to file periodic prospectus and timely prospectus – the former one must be filed at regular intervals, while the latter must be filed when a “material change” occurs, such as changes on the part of issuer’s business which may affect the market price or value of its securities.
However, there are instances where the issuers are exempted from filing the above-mentioned prospectuses, and these exemptions may be specifically checked with a securities lawyer. Generally, the exempted circumstances are:
- when securities are distributed or sold to accredited investors and employees;
- when securities are distributed or sold in connection with a take-over bid in relation to a merger and acquisition (M&A), or to certain business combinations; or
- when securities are distributed or sold through a private placement or private arrangement.
In addition, securities lawyers may also assist issuers in complying with financial reporting requirements before their respective Securities Commission, such as the filing of audited annual comparative financial statements, among others.
Litigious
When issuers fail, negligently or fraudulently, to file the necessary prospectus, civil and administrative remedies may be resorted to. In here, the practice of securities lawyers become litigious and may represent either party in the investment contract – either in defense of the issuer, or in prosecuting the said issuer.
These court actions may also be based on alleged misrepresentations of the issuers in the prospectus they filed, which may allow investors to recover damages against these issuers. To prevent any liability, the issuer in turn must show that it exercised due diligence in the filing of its prospectus, or that there are no reasonable grounds that such prospectus contains misrepresentations against the investors.
What is the goal of securities law?
The main goals are:
- to protect investors and their investments by providing remedies in case of violations on their right as investors;
- to ensure that markets on securities are fair and parties within it are transparent with their transactions and financial obligations;
- and to reduce the risk of any financial meltdowns given that securities are a large chunk of the financial industry in a given state or country.
Who regulates securities in Canada?
Canadian Securities Administrators (CSA)
The Canadian Securities Administrators (CSA) is the informal (in the sense that it’s not run by the federal Canadian government), national regulatory body for securities regulation, composed of the 10 provincial and 3 territorial Securities Commissions or regulators.
Since the CSA only performs regulatory and collaborative functions of these provincial and territorial Securities Commissions at the national level, it is the latter which receives complaints and handles administrative proceedings for these complaints, when empowered by their respective enabling law.
Passport system
One effect of harmonising the securities regulation of the provincial and territorial securities commissions is the “passport system” where public offerings by issuers may be offered and viewed in multiple provinces and territories. This gives issuers more opportunities to publicise their securities offerings, and for investors to select a wide array of these securities offerings; provided that the initial prospectuses by issuers are filed and cleared by their principal securities regulator, to be able to be accepted by the other securities regulators.
For example, an issuer from British Columbia must be cleared by the British Columbia Securities Commission (BCSC), before other provincial and territorial securities regulators can accept any securities offering by the said British Columbia issuer. However, the Ontario Securities Commission (OSC) does not participate in this “passport system”, which means that issuers who would want to participate in the Ontario market must apply and be accepted separately through the Ontario Securities Commission.
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