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The Ontario Securities Commission has recently published for comment Proposed OSC Rule 48-501 (Trading During Distributions, Formal Bids and Share Exchange Transactions), which would impose trading restrictions on dealers and issuers involved in a distribution of securities and certain other transactions, such as a securities exchange takeover bid, an issuer bid or an amalgamation, arrangement, capital reorganization or similar transaction. The purpose of the rule is to prescribe safe harbours and to otherwise restrict trading activities and preclude manipulative conduct by persons who might have an interest in the outcome of such a distribution or transaction.

The proposed rule would impose a restricted period during which restricted persons would not be allowed to bid for or purchase a restricted security. These restricted periods would differ in their application depending on whether that person was a dealer or an issuer.

The proposal contains a number of exemptions to the general trading restrictions based on the status of the person trading (for example, for a dealer appointed to act as an underwriter, the dealer is allowed to purchase or bid for a restricted security for market stabilization purposes) as well as the nature of the restricted security (for example, dealers trading highly-liquid securities). A highly-liquid security is a security that trades at least one-hundred times a day with an average trading value of $1 million per trading day. This exemption will not be available to issuers on the basis that issuers should not be able to trade in their securities, whether or not they are actively traded.

The Commission reviewed US Securities and Exchange Commission Regulation M in proposing Rule 45-501 and has requested comments before the end of the year on a number of issues, including divergences from Regulation M.

Nicholas Dietrich

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