PROPOSED RULES
FINANCIAL INSTITUTIONS
Original Notice.
Preproposal statement of inquiry was filed as WSR 02-23-026.
Title of Rule: Exchange and national market system exemption -- Toronto Stock Exchange.
Purpose: Amend WAC 460-42A-081 to create a secondary trading exemption for securities listed on the Toronto Stock Exchange (TSE).
Other Identifying Information: WAC 460-42A-081.
Statutory Authority for Adoption: RCW 21.20.450, 21.20.310(8).
Statute Being Implemented: RCW 21.20.310(8).
Summary: Amend WAC 460-42A-081 to create a securities registration exemption for companies whose securities are listed on the TSE. The exemption would be limited to nonissuer transactions and companies relying on the exemption must be reporting companies in Canada for one hundred eighty days prior to any transaction in reliance upon the exemption. The amendment also allows the director to exempt, by rule or order, other foreign exchanges for purposes the exemption.
Reasons Supporting Proposal: The proposal would amend WAC 460-42A-081 to provide a secondary trading exemption based upon listing on the TSE. The proposal would also allow the director of the Department of Financial Institutions to exempt other foreign exchanges by rule or order.
This would allow Washington residents to engage in secondary trading of TSE listed securities. Given the proximity of our state to Canada and the level of commerce between Washington and Canada, proving an exemption for securities listed on the TSE, Canada's senior exchange, is appropriate provided that the exchange is operated and regulated in a manner that provides adequate investor protection.
This proposal is based upon a model rule adopted by the North American Securities Administrators Association (NASAA) on April 14, 2002. NASAA's Trading and Exchanges Project Group, which studied the TSE specifically and Canadian securities regulation in general, concluded that investor protection will not be compromised by adopting this amendment. The project group made the following findings in its final report:
1. Securities legislation in Canada has developed in close proximity to United States securities legislation and generally has adopted the same basic goals, language, and mechanisms to insure investor protection.
2. Canadian stock exchanges have evolved along the same lines as their United States counterparts, with the same basic self-regulatory structure and responsibilities.
3. The comparability of the Canadian and United States securities regulatory systems is demonstrated by the multijurisdictional disclosure system, which permits certain offers to take place in both countries using disclosure documents prepared in accordance with the requirements of the home jurisdiction (see chapter 460-11A WAC).
4. The TSE is the third largest exchange in North America and is ranked eighth among world stock exchanges.
5. Listing on the TSE requires the filing of a comprehensive application and that the issuer meet certain minimum listing criteria. In order to maintain a listing, a company must meet certain maintenance listing requirements including the periodic filing of reports and financial information.
6. In many circumstances the TSE has broader discretion than United States exchanges or the NASDAQ regarding matters such as investigations of the background of officers and directors of listed companies and the right to review and approve the terms of private placements of the securities of listed issuers.
By allowing the director to designate other foreign countries and/or exchanges by rule or order, the proposal, like the model rule, is structured to comply with the North American Free Trade Agreement (NAFTA) and the General Agreement on Trade in Services (GATS), which require that administrative action providing special treatment to certain foreign countries or entities not precluding other foreign countries or entities from applying for equivalent treatment.
Because the proposal broadens the universe of securities in which United States persons may invest via secondary market transactions while preserving investor protection, it should be adopted.
Name of Agency Personnel Responsible for Drafting: William M. Beatty, 150 Israel Road S.W., Olympia, WA 98501, (360) 902-8760; Implementation: Helen P. Howell, 150 Israel Road S.W., Olympia, WA 98501, (360) 902-8760; and Enforcement: Deborah R. Bortner, 150 Israel Road S.W., Olympia, WA 98501, (360) 902-8760.
Name of Proponent: Department of Financial Institutions, Securities Division, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: See Reasons Supporting Proposal above.
Proposal Changes the Following Existing Rules: The proposed rule would amend WAC 460-42A-081 to provide a registration exemption companies whose securities are listed on the TSE. The proposal would also allow the director of the Department of Financial Institutions to exempt other foreign exchanges by rule or order.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposal does not impose additional costs on business.
RCW 34.05.328 does not apply to this rule adoption. The Department of Financial Institutions is not one of the agencies listed in RCW 34.05.328.
Hearing Location: Department of Financial Institutions, Boardroom, 150 Israel Road S.W., Olympia, WA 98501, on December 23, 2003, at 10:00 a.m.
Assistance for Persons with Disabilities: Contact Darlene Christianson by December 16, 2003, TDD (360) 664-8126 or (360) 902-8760.
Submit Written Comments to: William M. Beatty, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, fax (360) 704-6923, e-mail bbeatty@dfi.wa.gov, by December 22, 2003.
Date of Intended Adoption: December 24, 2003.
November 5, 2003
Helen P. Howell
Director
OTS-6741.1
AMENDATORY SECTION(Amending WSR 96-11-016, filed 5/6/96,
effective 6/6/96)
WAC 460-42A-081
Exchange and national market system
exemption.
(1) Any securities listed or designated, or
approved for listing or designation upon notice of issuance,
on (a) the New York Stock Exchange, (b) the American Stock
Exchange, (c) the NASDAQ/NMS interdealer quotation system
pursuant to the Memorandum of Understanding between the North
American Securities Administrators Association (NASAA) and the
National Association of Securities Dealers (NASD) adopted
April 28, 1990, (d) the Chicago Board Options Exchange
pursuant to the Memorandum of Understanding between NASAA and
the Chicago Board Options Exchange dated May 30, 1991, (e)
Tier I on the Pacific Stock Exchange pursuant to the
Memorandum of Understanding between NASAA and the Pacific
Stock Exchange dated October 12, 1994, or (f) Tier I on the
Philadelphia Stock Exchange pursuant to the Memorandum of
Understanding between NASAA and the Philadelphia Stock
Exchange dated October 12, 1994, any other security of the
same issuer which is of senior or substantially equal rank,
any security called for by subscription rights or warrants so
listed or approved, or any warrant or right to purchase or
subscribe to any of the foregoing is exempt under RCW 21.20.310(8). ((The administrator may by order withdraw this
exemption as to an exchange or interdealer quotation system or
a particular security when necessary in the public interest
for the protection of investors.))
(2) For the purposes of nonissuer transactions only, any security listed or approved for listing upon notice of issuance on (a) the NASDAQ/NMS interdealer quotation system, (b) the New York Stock Exchange, (c) the American Stock Exchange, (d) the Chicago Stock Exchange, (e) the Chicago Board Options Exchange, (f) the Pacific Stock Exchange, (g) the Philadelphia Stock Exchange, or any other stock exchange registered with the federal securities and exchange commission and approved by the director; any other security of the same issuer which is of senior or substantially equal rank; any security called for by subscription rights or warrants so listed or approved; or any warrant or right to purchase or subscribe to any of the foregoing, is exempted under RCW 21.20.310(8).
(3)(a) For the purposes of nonissuer transactions only, any security meeting the following requirements is exempted under RCW 21.20.310(8):
(i) The issuer of the security is a reporting issuer in a foreign country or jurisdiction designated in (b) of this subsection, or by rule or order of the director, and has been subject to continuous reporting requirements in such foreign country for not less than one hundred eighty days before the transaction; and
(ii) The security is listed on such foreign country's securities exchange which has been designated in (b) of this subsection, or by rule or order of the director, or is a security of the same issuer which is of senior or substantially equal rank to such listed security or is a warrant or right to purchase or subscribe to any of the foregoing.
(b) For purposes of (a) of this subsection, Canada together with its provinces and territories is a designated foreign jurisdiction and the Toronto Stock Exchange is a designated securities exchange.
(4) The director may by order withdraw the exemptions provided by subsection (1), (2), or (3) of this section as to an exchange or interdealer quotation system or a particular security when necessary in the public interest for the protection of investors.
[Statutory Authority: RCW 21.20.450. 96-11-016, § 460-42A-081, filed 5/6/96, effective 6/6/96. Statutory Authority: RCW 21.20.310(8) and 21.20.450. 91-04-010, § 460-42A-081, filed 1/25/91, effective 2/25/91; 89-21-032 (Order SDO-161-89), § 460-42A-081, filed 10/11/89, effective 11/11/89; 82-18-037 (Order SDO-100-82), § 460-42A-081, filed 8/27/82.]