As a transition matter, until all provinces and territories have opted into the federal regime (and become “participating jurisdictions”), certain categories of market participants could be regulated exclusively under the federal regime, either voluntarily or by virtue of having a substantial connection to a participating jurisdiction. This transition mechanism is referred to as the “opt-in” model, as described in further detail below. As stated previously, certain members of the Expert Panel noted their strong preference for a cooperative approach to moving forward towards the single securities regulator on a willing participation basis and their corresponding concerns about the opt-in model.

As non-participating jurisdictions (i.e., provinces and territories that do not choose to participate in this federal regime) would continue to exercise jurisdiction over securities regulation in their respective provinces or territories, issuers and registrants that have a “substantial connection” to any of these non-participating jurisdictions would be given the option to elect to be regulated under the federal regime only. Issuers and registrants who make such an election would then, for securities laws purposes, be regulated in Canada by the federal regime only, and would not be regulated by the non-participating jurisdictions. It is proposed that such an election would be made by filing a prescribed form with the federal regulator and with each applicable non-participating provincial or territorial regulator. This affirmative election would provide the regulators and the market with notice that only the federal regime is applicable in respect of such an issuer or registrant. Effectively, this means that for such issuers and registrants, only the federal offences, prospectus, registration and reporting requirements, etc. would be relevant, as applicable.

Issuers and registrants who have a substantial connection to a non-participating jurisdiction and who do not elect to be regulated by the federal regime would continue to be regulated by the securities laws of each non-participating jurisdiction in which they carry out a regulated activity, and also by the federal regime to the extent that an activity is carried out in one or more participating jurisdictions.

In order to afford issuers and registrants that have a substantial connection to a participating jurisdiction equal treatment with their electing counterparts in non-participating jurisdictions, under the opt-in model the federal regime would automatically apply to such participants in all provinces and territories of Canada to the exclusion of all remaining non-participating provincial or territorial regimes. As a result, issuers and registrants with a substantial connection to a participating jurisdiction would automatically be subject only to the federal securities laws.

For example, an issuer that does not have a substantial connection to a participating jurisdiction, but who has elected to be subject to federal securities laws, would be able to undertake a prospectus distribution in all provinces and territories of Canada in compliance with federal securities laws only, including having to obtain a receipt only from the federal regulator. Similarly, an issuer with a substantial connection to a participating jurisdiction would also be able to undertake a prospectus distribution in all provinces and territories of Canada in compliance with federal securities laws only, including having to obtain a receipt only from the federal regulator.

This opt-in (whether by election or automatically by virtue of the market participant’s substantial connection to a participating jurisdiction) would apply to both reporting and non-reporting issuers and to all categories of registrants. It is proposed that to determine whether an issuer or a registrant has a substantial connection to a province or territory, the federal regime would rely on a test similar to that currently used under the passport system, which relies primarily on the jurisdiction of a person’s head office to establish a substantial connection. Issuers and registrants who do not have a head office in a jurisdiction of Canada would be deemed to have a substantial connection to a participating jurisdiction, and therefore would be regulated under the federal regime only.

* The applicable law will include the laws of each province or territory that has not chosen to participate in the federal regime, to the extent that an activity is carried out there. As well, it also includes the federal law to the extent that an activity is carried out in a participating province or territory.