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U.S. securities law developments that Canadians should know about

Author(s): Jason Comerford, Rob Lando

Dec 6, 2016

While 2016 was a year of political turmoil in the United States, the U.S. Securities and Exchange Commission (SEC) kept working on its ongoing initiatives, with developments that are much more evolutionary than revolutionary. Changes that may be of particular interest to Canadian companies and Canadian investors active in U.S. markets include a requirement for mining and oil and gas companies to disclose payments made to foreign governments relating to commercial development as well as the SEC’s proposal to shorten the standard securities trade settlement cycle by one business day. Also, the SEC’s proposed adoption of universal proxies could influence future similar developments in Canada.

Here are some of the highlights:

Resource extraction issuer government payments

The SEC adopted rules requiring resource extraction issuers (including mining companies and oil and gas companies) that are subject to SEC reporting obligations to disclose payments made to governments for the commercial development of oil, natural gas or minerals, as required by the Dodd-Frank Act. The final rules were adopted following several years of court battles over the scope of the disclosure the SEC was mandated by the Dodd-Frank Act to require.

The required disclosure must be made annually using the new Form SD no later than 150 days after the issuer’s fiscal year end. Issuers will have to comply with the new rules starting with their fiscal year ending no earlier than September 30, 2018. Reports prepared under Canada’s Extractive Sector Transparency Measures Actwill be accepted by the SEC to satisfy this requirement.

For more information, please refer to our Osler Update entitled “U.S. final rules requiring disclosure of payments by resource extraction issuers”.

T+2 settlement cycle

The SEC has proposed shortening the standard settlement period for securities trades from three business days (T+3) to two business days (T+2). The stated objective is to reduce the risks that can arise during the period between the trade and settlement.

Universal proxy cards

The SEC proposed amendments to the U.S. proxy rules that would require parties in a contested election to use universal proxy cards including the names of all nominees for election – namely, both management and dissident nominees. The rule, if adopted, would ensure that shareholders have the ability to vote for their preferred combination of directors, rather than having to select either the full slate of management candidates or the full slate of dissident candidates. The proposed changes could make it easier and less costly for dissident candidates to be elected to corporate boards, potentially creating ripple effects on corporate governance practices and negotiating strategies for activists.

The proposed rule would not have a direct impact on the vast majority of Canadian companies, even if they are also public in the United States, because most Canadian companies qualify as “foreign private issuers” under the SEC’s rules and are therefore not subject to the SEC’s proxy rules. However, a universal proxy has been successfully used in at least one Canadian proxy contest (Pershing Square’s dissident campaign against CP Rail). The Canadian Coalition for Good Governance has previously expressed support for the use of universal proxies, and the close integration of Canadian and U.S. public markets often leads to adoption of similar requirements under Canadian securities laws.

For more information, please refer to our Osler Update entitled “The SEC’s universal proxy proposal: How it affects Canadian companies and investors

Disclosure effectiveness

The SEC is undertaking a major review of its disclosure requirements for public companies in an effort to eliminate redundant, overlapping and outdated requirements; achieve timely, material disclosure by companies; and ensure that shareholders have easy access to that information. In 2016, the SEC solicited comments on various aspects of Regulation S-K, the rules governing all disclosure requirements in SEC filings other than financial statements. It is unknown at this time what actual changes could be adopted as a result of this process, or when they might become effective.

Security-based swaps

The SEC pressed forward with the reforms required by Title VII of the Dodd-Frank Act in relation to security-based swaps. The SEC adopted final rules implementing business conduct standards and chief compliance officer requirements for security-based swap dealers and major security-based swap participants. The SEC also implemented additional rules for trade acknowledgment and verification requirements for security-based swaps, as well as further amendments and guidance related to regulatory reporting and public dissemination of security-based swap transactions, designed to increase transparency.

The JOBS Act

The SEC completed all of the rulemaking projects mandated by the JOBS Act. The last set of rules increased the thresholds for mandatory registration requirements under the U.S. Securities Exchange Act of 1934 (the Exchange Act), and implemented related changes to the requirements for termination of registration and suspension of reporting. As a result of the JOBS Act changes, absent an exemption, an issuer that is not a bank, bank holding company or savings and loan holding company is required to register a class of equity securities under the Exchange Act if it has more than US$10 million of total assets and the securities are “held of record” by either 2,000 or more persons, or 500 or more persons who are not accredited investors.

Mining disclosure

The SEC proposed rules to modernize disclosure requirements for mining properties and replace current Industry Guide 7, which has not been updated for more than 30 years. Among other reforms, the new rules would require disclosure of mineral resources and material exploration results, in addition to mineral reserves, instead of only permitting disclosure of reserves. If adopted, the SEC’s new rules would bring U.S. reserve and resource disclosure requirements more in line with industry and global regulatory practices and standards, particularly those of the Committee for Mineral Reserves International Reporting Standards (CRIRSCO). This would make the U.S. regime more consistent with Canadian National Instrument 43-101.


The SEC’s new crowdfunding rules came into effect in May. The rules allow smaller U.S.-based companies to raise up to US$1 million in a 12-month period through Internet-based funding portals. Individuals do not have to qualify as accredited investors or meet other eligibility criteria to participate, but the maximum amount an individual can invest each year is tied to his or her annual income and net worth, and cannot exceed US$100,000.