Bank Recapitalization (Bail-in) Conversion Regulations (SOR/2018-57)

Marginal note:Prescribed shares and liabilities

• 2 (1) Subject to subsections (2) to (7), the following shares and liabilities are prescribed for the purposes of subsection 39.2(2.3) of the Act:

  • (a) any debt obligation, other than subordinated indebtedness, that is issued by a domestic systemically important bank and that

    • (i) is perpetual, has an original or amended term to maturity of more than 400 days, has one or more explicit or embedded options that, if exercised by or on behalf of the issuer, would result in a maturity date that is more than 400 days from the date of issuance of the debt obligation or has an explicit or embedded option that, if exercised by or on behalf of the holder, would by itself result in a maturity date that is more than 400 days from the maturity date that would apply if the option were not exercised,

    • (ii) is unsecured or is only partially secured at the time of issuance, and

    • (iii) has been assigned a Committee on Uniform Security Identification Procedures (CUSIP) number, International Securities Identification Number (ISIN) or other similar designation that identifies a specific security in order to facilitate its trading and settlement; and

  • (b) any share or subordinated indebtedness that is issued by a domestic systemically important bank and that is neither a common share nor non-viability contingent capital.

• Marginal note:For greater certainty

  (2) For greater certainty, a reference to a debt obligation or to subordinated indebtedness in this section includes a reference to any debt obligation or subordinated indebtedness that is due but remains unpaid on the day on which the order under paragraph 39.13(1)(d) of the Act is made or becomes due after that day.

• Marginal note:Limitation

  (3) A share or liability is prescribed only if

  • (a) the share or liability is issued on or after the day on which these Regulations come into force; or

  • (b) in the case of a liability issued before the day on which these Regulations come into force, the terms of the liability are, on or after that day, amended to increase its principal amount or to extend its term to maturity.

• Marginal note:Partially secured

  (4) If a debt obligation, other than subordinated indebtedness, is only partially secured at the time of issuance, only the portion of the principal amount and accrued and unpaid interest of the debt obligation that exceeds the value of the collateral, determined at the time that the debt obligation is issued, is a prescribed liability.

• Marginal note:Exclusions

  (5) The following, as well as any liabilities that arise from any of them, are not prescribed shares or liabilities:

  • (a) any covered bond, as defined in section 21.5 of the National Housing Act;

  • (b) any eligible financial contract, as defined in subsection 39.15(9) of the Act;

  • (c) any structured note;

  • (d) any conversion or exchange privilege that is convertible at any time into shares;

  • (e) any option or right to acquire shares or any privilege referred to in paragraph (d); and

  • (f) any share of a series that was created before January 1, 2013 and issued as a result of the exercise of a conversion privilege under the terms of another series of shares that was created before January 1, 2013.

• Marginal note:Structured note

  (6) For the purposes of paragraph (5)(c), a structured note is a debt obligation that

  • (a) specifies that the obligation’s stated term to maturity, or a payment to be made by its issuer, is determined in whole or in part by reference to an index or reference point, including

    • (i) the performance or value of an entity or asset,

    • (ii) the market price of a security, commodity, investment fund or financial instrument,

    • (iii) an interest rate, and

    • (iv) the exchange rate between two currencies; or

  • (b) contains any other type of embedded derivative or similar feature.

• Marginal note:Exceptions — structured note

  (7) Despite subsection (6), the following debt obligations are not structured notes:

  • (a) a debt obligation in respect of which the stated term to maturity, or a payment to be made by its issuer, is determined in whole or principally by reference to the performance of a security of that issuer; and

  • (b) a debt obligation that

    • (i) specifies that the return on the debt obligation is determined by a fixed or floating interest rate or a fixed spread above or below a fixed or floating interest rate, regardless of whether the return is subject to a minimum interest rate or whether the interest rate changes between fixed and floating,

    • (ii) has no other terms affecting the stated term to maturity or the return on the debt obligation, with the exception of the right of the issuer to redeem the debt obligation or the right of the holder or issuer to extend its term to maturity, and

    • (iii) is payable in cash.