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NPS 43 (Draft) Advertising Of Securities And Related Sales Practices [Lapsed]

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Published: 1994-10-21

PART 1             INTRODUCTION

One of the fundamental assumptions underlying Canadian securities regulation is that market participants should have appropriate information and time to make informed investment decisions.  Canadian securities legislation is premised upon such decisions being made, in the case of a "distribution", on the basis of information provided in a prospectus, except where specific exemptions are available, and, in the case of trades in the secondary market, on the basis of a complete and current continuous disclosure record. 

The securities regulatory authorities recognize that, practically, advertising has become a more common phenomenon in the marketing and sale of securities. This policy statement articulates certain standards that the securities regulatory authorities believe are appropriate when securities are advertised.

The blanket orders attached to this policy statement permit advertisements to be made during the period between the issuance of a receipt for a preliminary prospectus and the issuance of a receipt for a prospectus in those jurisdictions where only tombstones are now permitted during this period under applicable securities legislation. 

The onus is on a person or company advertising securities to be satisfied that the Advertisement is not misleading in any material way and generally not prejudicial to the public interest.  The standards set forth in this policy statement may be relevant in determining whether an Advertisement is prejudicial to the public interest.  Such a determination could result in a securities regulatory authority exercising its discretion to make an order under applicable securities legislation, such as an order cease trading the securities referred to in the Advertisement or denying persons or companies certain statutory exemptions.

In addition, the securities legislation of Saskatchewan and Nova Scotia provide statutory rights of action for misrepresentation in Advertisements.

PART 2             DEFINITIONS

In this policy statement, the following terms have the following meanings:

"Advertisement" means information that is disseminated by or on behalf of an issuer, selling security holder or registrant to persons or companies other than registrants,

(a)        through the print media, or on radio or television,

(b)        by mail, facsimile, electronic mail, electronic bulletin boards or similar facilities,

(c)        by tele-marketing program,

(d)        in Marketing Documents,

(e)        in discs, cassettes or other audio or visual format,

(f)         through public promotions, such as billboards, signs or displays, or

(g)        at meetings of potential investors convened in connection with an offering of securities, other than meetings that are restricted to registrants,

that promotes or reasonably could be expected to promote a trade of specific securities;

"Image Advertising" means advertisements made in the ordinary course of the business of an issuer to promote the sale of products or services, or to raise public awareness  of the issuer, that cannot reasonably be considered to be intended to promote the trading of securities of the issuer or any of its affiliates1;

1           Advertising may be construed as being outside of the ordinary course and as promoting the trading of securities if it is initiated during, or shortly before, a distribution of securities.  Media coverage that reasonably can be considered to have been initiated or encouraged to further a distribution of securities may also be considered to be Advertising for the purposes of this policy statement.

Generally, the release of information to the media during the course of or shortly before a distribution of its securities which constitutes:

(1)         ordinary course advertisement of products and services unaccompanied by advertisements in respect of specific securities;

(2)         ordinary course announcements with respect to actual business and financial developments such as receipt of a contract, the settlement of a strike, the opening of a plant or similar events of interest to the community in which the business operates, unaccompanied by sales communications in respect of specific securities;

(3)         the response to unsolicited inquiries concerning factual matters from analysts, security holders and participants in the communications field who have a legitimate interest in the issuer's affairs, without reference to the sale of specific securities; or

(4)         disclosure made to comply with any legislative requirement or requirement of a securities regulatory authority or stock exchange to which the issuer is subject

would not be considered to be Advertisements for the purposes of this policy statement.

"Marketing Document" means a document that contains information about an issuer, its business or securities or the industry in which it operates that is used, or is intended to be used, to promote, or that could reasonably be expected to promote, a trade of specific securities, other than a document substantially all of the contents of which are prescribed by applicable securities legislation or a policy, order or ruling of an applicable securities regulatory authority, or a policy or by-law of a stock exchange recognized for this purpose; and

"Offering Document" means a preliminary prospectus, (final) prospectus, statement of material facts, offering memorandum or other offering document that is filed or delivered by or on behalf of an issuer or selling security holder under a requirement imposed by applicable securities legislation or a policy, order or ruling of an applicable securities regulatory authority or a policy or by-law of a stock exchange recognized for this purpose.

PART 3             APPLICATION OF POLICY

3.1        Application  The principles enunciated in this policy statement apply to every Advertisement (including Advertisements relating to distributions, whether under a prospectus or prospectus exemption, and Advertisements relating to trading in the secondary market), other than:

(1)        Advertisements of securities issued by a mutual fund that is subject to National Policy Statement No. 39, to which reference should be made;

(2)        Advertisements of bonds, debentures or other evidences of indebtedness of or guaranteed by the Government of Canada or any province of Canada or any municipal corporation in Canada or any agency of the foregoing;

(3)        Image Advertising; and

(4)        research reports distributed by a registrant in the ordinary course of its business and not produced for the purpose of facilitating a distribution of specific securities.

3.2        Secondary Market   The principles enunciated in this policy statement do not apply to Advertisements relating to trading in the secondary market when such trades are done in Quebec.

3.3        Green Sheet   For the purpose of the application of this policy statement, a document commonly known as a green sheet, that is disseminated by or on behalf of an issuer, selling security holder or registrant to persons or companies other than registrants, will be considered a Marketing Document.

3.4        Provisions are not Exhaustive   Except as expressly provided in the blanket orders and rulings issued in connection with this policy statement, a person or company must still comply with the provisions of applicable securities legislation.  For example, compliance is required with applicable provisions that:

(1)        preclude representations that,

(a)        a securities regulatory authority has reviewed the offering, its merits, or the manner in which it is being effected, or in any way passed upon the financial standing, fitness or conduct of a registrant, issuer or selling security holder,

(b)        relate to the resale or repurchase of a security,

(c)        relate to the refund of the purchase price of a security,

(d)        relate to the listing, or application for listing, of a security on an exchange, without the written permission of the applicable securities regulatory authority, or

(e)        relate to the anticipated future value or trading price of a security;

(2)        prohibit the advertisement of securities being distributed in reliance on certain prospectus exemptions (such as the exemptions available in certain jurisdictions for government incentive securities or seed capital transactions), or in reliance on a discretionary exemption order, as a condition of the availability of that exemption or order;

(3)        require an issuer to disseminate information under the continuous  disclosure provisions of applicable securities legislation; or

(4)        preclude Advertisements (as acts in furtherance of a trade) before the issuance of a receipt for a preliminary prospectus.

PART 4             APPLICABLE PRINCIPLES

4.1        General Principles   An Advertisement may be considered to be objectionable if it:

(1)        contains an untrue statement of a material fact;

(2)        omits to state a material fact that is necessary to make a statement not misleading in light of the circumstances in which it is made2

            For example, where an investor could reasonably draw a false inference, partial disclosure should be avoided.;

(3)        includes information (whether through words or visual images) that conflicts with information that is contained in, or is incorporated by reference into, an Offering Document or another Advertisement made in connection with the offering of the same securities;

(4)        presents information (whether through words or visual images) in a manner that is false, misleading or deceptive or gives rise to misleading implications or impressions, whether as a result of distortion, selective presentation, lack of explanations, qualifications or limitations or otherwise;

(5)        forms part of a course of conduct that could reasonably be regarded as high pressure or sensational including, for example, extravagant claims or statements3

3              For example, referring to an asset as a "gold property" could be considered to be an extravagant claim when only exploratory work has begun on the property.,

unduly promotional language4

4              For example, words or phrases such as "lucrative", "unique" and "exciting concept" generally could be unduly promotional and inappropriate.

Generally, words such as "preferred", "guaranteed", "liquid", and "indemnity" should be avoided.  If these words are used, they should be used only in a clear context. For example, when "preferred" is used, the nature of the preference (dividends, creditor's claim) should be disclosed. When "guaranteed" is used, what is guaranteed, the guarantor and the underlying security for the guarantee should be disclosed. "Liquid" should be used only when the investment can be readily converted into cash.

or unbalanced views of the investment5

5              If, for example, a claim is made that the securities offered afford "opportunities for significant growth", the associated downside risks should be given equal prominence.;

(6)        portray past income, gain or growth of assets in a manner that conveys an impression of net investment results that is not justified6

6              For example:

-              charts or graphs used to illustrate past performance should be drawn on a scale that avoids misleading implications; and

 -              if any historical rate of return is shown, it should be based on the results of at least five consecutive financial years and should be shown on an annual compound basis.  Reference should be made to any reduction of the rate of return for sales charges, redemption fees or other fees or expenses payable by security holders.;

(7)        include future oriented financial information, unless it is expressly permitted by and prepared in accordance with National Policy Statement No. 48 or other applicable securities legislation or policies of the applicable securities regulatory authorities;

(8)        place undue emphasis on income tax implications of investment in a security or an offering; or

(9)        refer to a result that is dependent on a contingency without also describing the contingency7

7              For example, rates of return should not be advertised unless every condition on the rate of return is disclosed.

4.2        Disclosure of Interest   An Advertisement should disclose in a conspicuous manner:

(1)        the person or company on whose behalf the Advertisement was prepared; and

(2)        if the Advertisement contains a recommendation or advice by a registrant with respect to a security,

(a)        a statement disclosing any financial or other interest the registrant or any of its affiliates has either directly or indirectly in the issuer or the securities referred to in the Advertisement, and

(b)        the particulars of any such financial or other interest, including any commissions, financial arrangements or other remuneration the registrant or any  of its  affiliates  reasonably  expects to receive from the issuer, the selling security holder or any of their respective affiliates or reference to a document in which the particulars are disclosed.

4.3        Reference to Offering Document  An Advertisement made in connection with an offering of securities for which an Offering Document is being used should disclose in a conspicuous manner the following or similar words:

"Important information about this offering is contained in the [describe Offering Document] relating to this offering, a copy of which may be obtained from [name and address].  You should obtain and read that document before making an investment decision."

4.4        No Additional Information   An Advertisement made in connection with an offering of securities for which an Offering Document is being used should not include material information (whether through words or visual images) that is not included in or incorporated by reference into that Offering Document.

4.5        Marketing Document to be Accompanied by an Offering Document8

8          Some securities regulatory authorities may require the filing of Marketing Documents and other advertising material in duplicate for review on a selective basis.

No Marketing Document, disc or cassette should be distributed to a potential investor in connection with an offering of securities for which an Offering Document is being used unless the potential investor receiving the Marketing Document, disc or cassette also receives concurrently the Offering Document or has already received a copy of that document.

4.6        Timing of Advertisements    Notwithstanding some applicable securities legislation which restricts advertising during the period between the issuance of a receipt for a preliminary prospectus and the issuance of a  receipt  for  a prospectus, Advertisements that follow the standards in this policy statement may be made in connection with an offering of securities under a prospectus at any time after a receipt has been obtained from the applicable securities regulatory authorities for the preliminary prospectus under which the offering is being made.

PART 5             INVESTOR MEETINGS

5.1        Treatment of Attendees  If a meeting of potential investors is convened in connection with an offering of securities for which an Offering Document is being, is required to be or is contemplated to be used, each attendee should be provided with a copy of the Offering Document that is then in existence unless the attendee confirms in writing having received a copy of that document prior to the meeting.

5.2        Educational Meetings  A meeting of potential investors should not be described as "educational" if the principal purpose of the meeting is to promote the sale of a specific security or the securities of a specific issuer.

PART 6             PRIZES

A securities regulatory authority may have concerns if prizes, cash awards or other such benefits are offered to potential investors to induce them to attend a meeting in connection with an offering of securities or to purchase securities.

PART 7             IMPLEMENTATION

7.1        Blanket Ruling   In connection with this policy statement, some of the provincial securities regulatory authorities have issued a blanket order or ruling in the forms attached to this policy statement as Appendix A. 

7.2        Effective Date   This policy statement will take effect [*].

7.3        Prior Policies and Notices   Immediately upon this policy statement taking effect, the following policy statements and notices will be repealed:

(1)        Uniform Act Policy Statement No. 2-13;

(2)        National Policy Statement No. 21;

(3)        Interim National Policy Statement No. 42;

(4)        Section 2.4 of B.C. Local Policy Statement 3-03;

(5)        B.C. Local Policy Statement 3-39;

(6)        Saskatchewan Local Policy 1.3, however the Saskatchewan Securities Commission will retain the requirement for prior approval for certain offerings;

(7)        Ontario notice respecting media coverage published in [1987], 10 OSCB at 2831;

(8)        Ontario notice respecting media interviews and forecasts during the waiting period published in [1988], 11 OSCB 1098; and

(9)        Quebec notice respecting advertising before the receipt for the final prospectus published in the June 20, 1986 Bulletin Hebdomadaire (Vol. XVII, No. 25).

 

BOR#94/*

IN THE MATTER OF THE SECURITIES ACT S.B.C. 1985, c. 83

AND

IN THE MATTER OF NATIONAL POLICY STATEMENT NO. 43

Draft Exemption Order Under Section 59 of the Securities Act

WHEREAS on *, the British Columbia Securities Commission published National Policy Statement No. 43, entitled Advertisements of Securities and Related Sales Practices (the "Policy");

AND WHEREAS the Policy articulates certain standards that the Commission consider are appropriate when securities are advertised;

AND WHEREAS section 61 of the Securities Act, S.B.C. 1985, c. 83 (the "Act") limits the nature and extent of communication that may take place between a dealer or issuer of a security and a person during the waiting period as defined in section 61 of the Act (the "Waiting Period");

AND WHEREAS the Policy is structured on the basis that exemptions will be provided, on the condition that the requirements of the Policy are met, from the requirements of section 61 of the Act;

AND WHEREAS the Commission considers that to do so would not be prejudicial to the public interest;

IT IS ORDERED, under section 59 of the Act, that where a dealer or issuer, during the Waiting Period, advertises  securities that are offered under a prospectus, section 42 of the Act does not apply to communication that may take place between a dealer or issuer of a security and a person during the Waiting Period, provided that the advertisement is made in compliance with the Policy.

DATED at Vancouver, British Columbia, on **, 1994.

Douglas M. Hyndman
Chair

ALBERTA SECURITIES COMMISSION

IN THE MATTER OF THE SECURITIES ACT (S.A. 1981, c.S-6.1, AS AMENDED)(THE "ACT")

-AND-

IN THE MATTER OF NATIONAL POLICY STATEMENT NO. 43 - ADVERTISEMENTSOF SECURITIES AND RELATED SALES PRACTICES (The "Policy")

ORDER

SUBSECTION 116(1) and SECTION 185

1. WHEREAS the Chief of Securities Administration (the "Chief") has made an application to the Board of the Alberta Securities Commission (the "Board") for:

1.1        an order pursuant to subsection 116(1) of the Act exempting certain advertisements of securities and related sales practices from section 81 of the Act; and

1.2       an order pursuant to section 185 of the Act exempting certain advertisements of securities and related sales practices from section 99 of the Act;

2. AND WHEREAS it was represented by the Chief to the Board that:

2.1        section 81 of the Act requires that any person or company trading in a security must file a prospectus and obtain a receipt if the trade would be a distribution of the security;

2.2        section 99 of the Act limits the nature and extent of communication that may take place during the period of time between the issuance of a receipt for a preliminary prospectus and the issuance of a receipt for a prospectus (the "waiting period");

2.3        the Alberta Securities Commission (the "Commission") published the Policy on * for public comment;

2.4        following expiration of the public comment period, the Board by Resolution dated *  approved and adopted the Policy;

2.5        the Policy articulates certain standards that the Commission considers appropriate when securities are advertised and permits advertisements of securities during the waiting period;

3. AND WHEREAS the Board is of the view that to so order will not reduce the existing benefits of investor protection and will not be prejudicial to the public interest;

4. IT IS HEREBY ORDERED pursuant to subsection 116(1) and section 185 of the Act that sections 81 and 99 of the Act do not apply to certain advertisements made during the waiting period, provided that the advertisements are made in compliance with the Policy.

Dated at the City of EDMONTON

in the Province of ALBERTA

this * day of *, 199*

 

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, CHAPTER S.5, AS AMENDED

AND

IN THE MATTER OF NATIONAL POLICY STATEMENT NO. 43

RULING

Subsection 74(1)

UPON the application of the Director (the "Director") of the Ontario Securities Commission (the "Commission") pursuant to subsection 74(1) of the Securities Act (Ontario), R.S.O. 1990, c.S. 5, as amended (the "Act") for a ruling exempting certain advertisements of securities and related sales practices as referred to in National Policy Statement No. 43 entitled "Advertisements of Securities and Related Sales Practices", as amended from time to time (the "Policy"), which policy may be varied by the Commission or the Director in respect of a specific issuer or offering of securities, from the requirements of section 53 of the Act, insofar as that section limits, when read in conjunction with section 65 of the Act, certain communications relating to an offering of securities during the waiting period as defined in subsection 65(1) of the Act (the "Waiting Period");

AND WHEREAS the Policy articulates certain standards that the Commission considers to be appropriate when securities are advertised;

AND WHEREAS the Policy is structured on the basis that exemptions are available, on the condition that the requirements of the Policy are met, from the requirements of section 53 of the Act;

AND WHEREAS the Commission considers that to do so would not be prejudicial to the public interest;

IT IS RULED, pursuant to subsection 74(1) of the Act, that section 53 of the Act, when read in conjunction with section 65 of the Act, does not apply to Advertisements, as defined in the Policy, made during the Waiting Period, provided that the Advertisements are made in compliance with the Policy.

DATED at Toronto, this      day of September, 1994.

 

 

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