Investors Scrutinizing the Regulators

Home Page


Securities Regulation In CanadA

Fox Guarding the Hen House


Ontario introduces legislation to implement secondary market disclosure

Goal is to improve investor protection

Monday, November 22, 2004

By James Langton

Making good on a promise it made in October, Ontario’s government today introduced legislation that would enshrine civil liability for secondary market disclosure.

If passed, the legislation would allow the government to implement broader rights for investors to sue companies for disclosing false or misleading information. Civil liability already exists in the primary market where investors receive a prospectus. The Ontario Securities Act gives investors the right to sue if this information is false or misleading.

Implementing civil liability for secondary market disclosure requires the introduction of technical changes to sections of the Securities Act that have been enacted (in Bill 198 from 2002), but not proclaimed. These technical changes would ensure that provisions on civil liability for secondary market disclosure are consistent with the rest of the Securities Act and would address other technical issues identified since the measures were enacted.

The changes include:


ensuring there is consistency with existing remedies for investors in the primary market;

ensuring liability standards for offences are fair and consistent across primary and secondary markets; and

treating credit rating agencies consistently under both the new secondary market civil liability provisions and the existing primary market provisions to preserve investor access to ongoing information about the credit ratings of companies’ debt securities.

If passed, these changes would allow the government to seek proclamation of broader rights for secondary market investors to sue for misleading disclosure and the failure to make timely disclosure and specific prohibitions of misrepresentations, fraud and market manipulation.

“The people of Ontario have a vested interest in improved investor protection,” said chair of the Management Board of Cabinet Gerry Phillips, in a release.”

“Implementing civil liability for investors in the secondary market, where over 90% of shares are bought and sold, is the right thing to do for investors in Ontario,” Phillips said.

Implementing civil liability for secondary market disclosure is one of the recommendations from the Ontario Legislature’s Standing Committee on Finance and Economic Affairs (SCFEA) Report on the Five Year Review of the Securities Act, tabled in the legislature October 18. Both SCFEA and the Five Year Review (Crawford) reports recommended Ontario implement civil liability for secondary market disclosure.