Frequently Asked Questions
Question 1
Question 2
I think I may have unintentionally violated a provision of the Securities Act, what should I do? Answer 2
Question 3
If I want to sell securities and give investment advice in Nova Scotia, do I need to be registered with anyone? Answer 3
Question 4
What is the procedure for making an application to the Commission? Who should the application be addressed to and what are the application fees? Answer 4
Question 5
I am a registered salesperson/officer with a dealer/advisor and I also am engaged in a business activity outside my registered capacity. Are there any steps that I must take to ensure my outside business activity is not in contravention of any securities regulations? Answer 5
Question 6
I am registered as a mutual fund salesperson, am I able to incorporate myself in order to have my commissions paid to the new corporation? Answer 6
Question 7
If I want to raise capital from investors in Nova Scotia to finance a new venture, do I need to clear a prospectus? Answer 7
Question 8
What do I have to do if I want to rely on an exemption from either or both of the registration or prospectus requirements in the Act? Answer 8
Question 9
My broker encouraged me to buy shares of a company that he said was a sure thing and now the price of the shares has "tanked". What can the Securities Commission do for me? Answer 9
Question 10
I've heard of the "Know Your Client" rule. What is it? Answer 10
Question 11
What if I discover that the information in an offering document was misleading? What are my rights as a purchaser? Answer 11
Question 12
I am interested in taking a course on investing in securities, for my own benefit, or that might lead to a career in the securities industry. Who do I contact? Answer 12
Answer 1
This term is very broadly defined in the Securities Act and includes a broad range of property interests and rights under 16 sub headings of the definition. Generally speaking, the essence of a security is that it constitutes or evidences a property interest, right or claim held by one person (the investor) in another (the issuer of the security) whereby the investor expects to profit or benefit financially, in accordance with the terms on which the security is issued, from the business or operations of the issuer. Most common forms of securities go by such names as shares, common or preferred, of a limited company, bonds, debentures and promissory notes, units of a mutual fund or limited partnership and warrants, rights and options to purchase underlying securities of an issuer.
It is important to bear in mind however that whether something is a security or not depends not on the form that the investment takes but in the fact that certain proprietary rights and legal obligations have been created that give rise to a business relationship that has the characteristics of an investment.
Back to Question 1Answer 2
The first step is to try and determine whether in fact a provision of the Nova Scotia securities laws has been broken. This may require you to consult with a lawyer. Our Staff is also available to discuss your concern or to meet with you and try to sort out whether a violation of the law, in its letter or its spirit, has occurred. Call (902) 424-6179 or contact us via e-mail and your request will be directed to the most appropriate branch for dealing with your question.
In general, where there is no intent to break the law, and no negligence or wilful blindness, our aim will be to work with you to address the breach. Another objective will be to see that steps are taken to avoid any repetition of the events and circumstances that caused the violation to occur.
While it is impossible to predetermine what specific actions might be taken, given the variety and uniqueness of each set of circumstances that may result in the breaking of the law, our approach to unintentional or inadvertent breaches is oriented toward promoting a culture of compliance with securities laws and usually stops short of a more draconian enforcement approach. A more severe approach is generally reserved for cases where there has been a wilful attempt to evade or avoid the laws or some negligence resulting in harm to the public or whenever there is a real risk of danger to the public calling for stronger measures.
Answer 3
The answer to this question in most cases is yes, especially if the activities in question are not isolated events but rather going to become your occupation or business. While there are numerous exemptions in National Instrument 45-106 and the Securities Act, the general rule is that no person or company can trade in securities, engage in the business of advising on investment matters and the buying and selling of specific securities or act as an underwriter of securities without a registration in accordance with the Securities Act and the rules made under the Securities Act. If registration is required, you will have to make an application to the Director of Securities.
When in doubt your first step should be to contact our Capital Markets branch. You will be advised if registration is required and if so in what categories. You may also obtain a checklist of registration requirements for the category or categories that are relevant to you and the forms that must be filed in support of the application.
- Investment Counsel and Portfolio Manager
- Security Issuer
- Investment Dealer/Broker
- Scholarship Plan Dealer
- Mutual Fund Dealer
If there are special circumstances that make registration impossible or unreasonable and no statutory exemption fits your circumstances, you may apply to the Commission for a discretionary exemption ruling. Our Exemptions Branch is available to discuss with you whether an application is necessary and what procedures should be followed. Such applications are usually made by a solicitor on behalf of an applicant who will endeavor to persuade the Commission that a discretionary ruling is appropriate in a given set of circumstances.
Answer 4
The procedures and guidelines for applications to the Commission are set out in the Commission’s Notice No. 6. The Notice states that the form and content of the application should follow the guidelines set out in Ontario Securities Commission Policy 2.1. An application that is filed by noon on any Friday that is not a holiday will usually be considered by the Commission at its next meeting, usually the following Wednesday.
This does not mean that the exemption requested will be granted or denied at that meeting. It does mean that the applicant will receive an indication of whether the application raises major issues which will take time to resolve or whether the application is of a straightforward nature.
Applications made under a provision of the Securities Act, other than subsections 44(3) and 67(5), should be addressed to the Secretary of the Commission. Applications made under subsection 44(3) or 67(5) of the Securities Act, a provision of the General Securities Rules (previously known as the Securities Regulations) or a national or multilateral instrument should be addressed to the Director of Securities.
The fee for an application made under subsection 79(1) of the Securities Act is $450. The fee for an application made under any other provision is $350. Details of the fees are set out in the Fee Schedule section of this website. There is no GST or HST on the fee and the cheque should be made payable to the Minister of Finance, Province of Nova Scotia. A fee is payable for each head of relief that is being requested. For example, the total fee for an application that seeks relief under sub clause 128(2)(a)(ii) of the Securities Act ($350) and National Instrument 51-102 ($350) is $700.
Once an application has been reviewed by Commission staff, there is no refund of the application fees.
Answer 5
The steps that are required for anyone in this situation are described in Staff Notice No. 34-701. Back to Question 5
Answer 6
It is possible; please refer to NSSC Notice 31-702 . Back to Question 6
Answer 7
In general, yes. No person or company may trade in a security that would constitute a distribution, as defined in the Securities Act, unless a preliminary prospectus and a final prospectus has been filed with the Director and receipts obtained in accordance with the Securities Act and the rules. The raising of capital will almost certainly require you to issue a security, as defined in the Securities Act.
However, there are numerous exemptions to the prospectus requirement in National Instrument 45-106. There are exemptions available for large purchases of securities (ones having an aggregate acquisition cost of $150,000 CDN or more), for sales to certain sophisticated parties and for investments in private issuers where the securities are not offered for sale to the public.
In most circumstances an entirely new venture will not have enough of a track record or the resources, both human and financial, to successfully make a prospectus offering to the general public. Issuers may need to secure venture capital from professional investors or lenders who specialize in that market. In the case of smaller offerings, the capital may have to come from your friends, relatives and close business associates provided they are intimately familiar with you and your business. Once the venture has demonstrated its viability, and the management and directors their competence, it will be in a better position to attract new capital, if needed, through an offering by prospectus to the broad investing public.
Given the technicality and relative complexity of the Securities Act, you will often need professional legal and accounting advice whenever you engage in activities that are subject to securities regulation.
Answer 8
The majority of the registration and prospectus exemptions are now in National Instrument 45-106, which was adopted as a rule by the Commission in Rule 45-106. A list of the remaining local Nova Scotia exemptions can be found in CSA Staff Notice 45-304. In most cases the exemptions are self-executing. Two notable exceptions are the exemptions under the Community Economic Development Corporations Regulation and the rights offering exemptions. In virtually all other cases a person or company must simply determine, with the assistance of counsel if need be, whether it has satisfied all of the requirements of and can rely on an exemption in respect of a proposed transaction or series of transactions. In that case no prior notice to the Commission is required unless explicitly required by the terms of the exemption itself, as in the two examples referred to earlier where a letter of non disapproval or non objection of the Director of Securities is required. A number of the exemptions, however, require that a report of trade be filed , usually on Form 45-106F1 which is attached to National Instrument 45-106, not later than 10 days after the trade or trades in question have been completed. Back to Question 8
Answer 9
The Securities Commission is an administrative tribunal with several functions. One of its principal functions is to regulate market professionals such as brokers and securities sellers and advisers of various kinds. The Securities Act, rules and regulations made under the Securities Act create certain systemic standards that govern the conduct of market professionals, who generally are required to be registered with the Commission in order to trade in securities in the Province. A registrant who breaches those standards is subject to disciplinary action by the Commission that may result in the Commission imposing a sanction on the registrant. Sanctions may include the imposition of additional terms and conditions on the registration, issuing a reprimand, or suspension or cancellation of the registration. The Commission can also impose an administrative penalty of up to $500,000 per occurrence on an individual registrant or the registered dealer by whom he or she is employed or both. A registered dealer will be held accountable if it is shown that it has failed in a duty, such as to properly supervise registrants that trade on its behalf. One thing the Commission cannot do is order a registrant to compensate a client. An aggrieved client seeking compensation for losses resulting from a failed investment must either negotiate a settlement with the parties involved or have recourse to the courts. It is up to the courts to determine if the claim is a good one or not.
Many registrants are also members of self regulatory organizations (SRO's), such as the Investment Dealers Association of Canada. SRO's also have standards with which their members must comply and have powers to sanction non-complying members and their employees. In most cases, a complaint involving an SRO member firm will be referred to the SRO for investigation and action where appropriate. Our Compliance and Enforcement branch will monitor the progress of the investigation and will not recommend separate action by the Commission unless it seems required for the protection of the public.
The primary duty of a registrant is to act in the best interests of the client and to always act honestly, fairly and in good faith with the client. The Act specifically prohibits any representation as to the future value of a security and pursuant to statutory and SRO rules every registrant must determine that each proposed trade is a suitable one for the client having regard to the client's investment needs and objectives. If after investigation by our Compliance and Enforcement branch or by an SRO it is found that a regulatory standard has been breached by the registrant, appropriate disciplinary action will be taken either by the Commission or the SRO or both.
Answer 10
The Know Your Client (KYC) rule has two aspects. In its first aspect it requires a dealer or adviser to make sufficient inquiries to determine the identity and credit worthiness of each client and, when in doubt, the good reputation of each client. In that respect, it is aimed primarily at preserving the adequacy of the dealer's capital and generally the integrity of the trading system in Canada.
The second aspect is to require each dealer or adviser to make inquiries that are appropriate in view of the nature of the client's investment and of the type of transaction being done for its account in order to determine the client's general investment needs and objectives and the suitability of a proposed purchase or sale for that client. This is sometimes referred to as the "suitability" rule to distinguishing it from the other aspect of the KYC rule.
This aspect of the rule is an integral piece of investor protection and where suitability is subsequently in question places the burden on the dealer or adviser to show that it discharged its duty and made the necessary inquiries before the transaction was effected.
Answer 11
Where certain offering documents, such as a prospectus or an offering memorandum, contain a misrepresentation, the Securities Act provides that a purchaser may elect to exercise a right of rescission or to seek damages against the issuer, the issuer's directors, the underwriters of the offering and certain others in some cases. Issuers are held strictly liable for their misrepresentations, while others may have certain defenses if they acted reasonably, in good faith and exercised "due diligence" before approving or signing the prospectus.
The Securities Act deems reliance by a purchaser on the misrepresentations in the prospectus unless there is proof the purchaser knew the representations were false.
Answer 12
Information on investing in securities courses can be obtained from the Canadian Securities Institute and the Investment Funds Institute of Canada. Both of these can be found as links on our Investor Education page. Back to Question 12