CSC Canadian Regulatory Environment 4 — Questions and Answers
Question 1: To qualify as an 'accredited investor' under Canadian securities law and access the prospectus exemption, an individual generally must have:
- Net assets of at least $500,000 excluding primary residence
- Net financial assets exceeding $1 million, or net assets exceeding $5 million, or income exceeding $200,000 (or $300,000 combined with spouse) in each of the prior two years (Correct answer)
- A minimum of $250,000 in a registered retirement savings account
- A CFA designation and at least five years of investment experience
Correct answer: Net financial assets exceeding $1 million, or net assets exceeding $5 million, or income exceeding $200,000 (or $300,000 combined with spouse) in each of the prior two years
The accredited investor exemption in NI 45-106 uses financial thresholds (net financial assets, net assets, or income) to identify sophisticated investors who do not require the protection of a prospectus.
Question 2: Which statement correctly distinguishes a 'material fact' from a 'material change' under Canadian securities legislation?
- A material change relates only to financial results; a material fact relates to management personnel changes
- A material change involves a change in the business, operations, or capital of the issuer; a material fact is any fact that would reasonably be expected to significantly affect the market price of a security (Correct answer)
- Material facts must be disclosed in 2 business days; material changes can wait until the next MD&A
- The two terms are legally interchangeable under National Instrument 51-102
Correct answer: A material change involves a change in the business, operations, or capital of the issuer; a material fact is any fact that would reasonably be expected to significantly affect the market price of a security
A material change is a specific event affecting the issuer's business, operations, or capital requiring prompt disclosure; a material fact is broader and includes any information that could affect the security's price.
Question 3: Under continuous disclosure rules in NI 51-102, how quickly must a reporting issuer publicly disclose a material change?
- Within 10 calendar days of the change
- Promptly and, in any event, within 2 business days via a press release (Correct answer)
- At the next quarterly financial reporting deadline
- Within 30 days if the material change is not yet finalized
Correct answer: Promptly and, in any event, within 2 business days via a press release
NI 51-102 requires issuers to issue a press release disclosing a material change promptly and in any event no later than 2 business days after the change occurs.
Question 4: Under Canadian securities legislation, who qualifies as an 'insider' subject to trading restrictions and reporting requirements?
- Only the CEO and CFO of a reporting issuer
- Directors, senior officers, the issuer itself, and any person or company that beneficially owns or controls more than 10% of the issuer's voting securities (Correct answer)
- Any employee of the issuer or its subsidiaries
- Only members of the board of directors and their immediate family
Correct answer: Directors, senior officers, the issuer itself, and any person or company that beneficially owns or controls more than 10% of the issuer's voting securities
Insiders include directors, senior officers, the issuer, and significant shareholders (generally 10% or more), all of whom have access to material non-public information.
Question 5: Under National Instrument 55-104, how many calendar days does an insider typically have to file an insider report after executing a trade?
- 2 calendar days
- 5 calendar days (Correct answer)
- 10 calendar days
- 30 calendar days
Correct answer: 5 calendar days
NI 55-104 generally requires insiders to file an insider report within 5 calendar days of the date of the trade.
Question 6: SEDAR+ replaced the original SEDAR system in 2023. What is its primary function?
- Registering securities dealers and advisors nationally through a centralized database
- Serving as Canada's electronic filing and public access system for securities regulatory documents and continuous disclosure filings (Correct answer)
- Processing investor complaints against registered firms on behalf of provincial regulators
- Calculating real-time margin requirements for exchange-traded derivatives
Correct answer: Serving as Canada's electronic filing and public access system for securities regulatory documents and continuous disclosure filings
SEDAR+ (System for Electronic Document Analysis and Retrieval) is the CSA's modernized online platform for filing and accessing public company disclosure documents such as prospectuses, AIFs, and financial statements.
Question 7: The 'tipping' prohibition under Canadian securities law makes it illegal to:
- Pay a finder's fee to an unlicensed person who introduces investment clients
- Inform another person of material non-public information about a reporting issuer when it is reasonably foreseeable that the person may trade on that information (Correct answer)
- Recommend a security without disclosing a personal conflict of interest to the client
- Charge undisclosed commissions above those agreed upon in the client account agreement
Correct answer: Inform another person of material non-public information about a reporting issuer when it is reasonably foreseeable that the person may trade on that information
Tipping occurs when an insider communicates material non-public information to another person, knowing or reasonably foreseeing they may trade on it, and is prohibited under securities legislation even if the tipper does not trade themselves.
CSC Canadian Regulatory Environment 4
To qualify as an 'accredited investor' under Canadian securities law and access the prospectus exemption, an individual generally must have: