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ABCP reporting under scrutiny

As well as a review of public companies, the OSC has sent questionnaires to mutual fund managers

The Ontario Securities Commission is reviewing the way public companies have reported on their exposure to asset-backed commercial paper investments.

The OSC launched the examination with a goal of finding and correcting inadequate disclosures in financial reports. The examination has not led to enforcement action being taken against any companies.

"The public companies have disclosure requirements and, as we've said in the past, if there's a material effect it would have to be disclosed," spokeswoman Laurie Gillett said.

Since the market for ABCP went into a tailspin in August, several dozen public companies have revealed they hold notes that have fallen in value or cannot be sold. In most cases, the investments were intended to be a short-term place to hold cash reserves, often used in lieu of a money-market fund or similar liquid investment.

In addition to the review of public companies, the OSC also sent questionnaires to mutual fund managers in late August, asking them to report on their holdings of ABCP.

The OSC said it wanted to determine the level of exposure to ABCP in the funds. The initial reports have been returned to the commission, and the OSC is in the process of following up on the responses.

Ms. Gillett said the OSC's investment funds branch has referred one matter involving an investment fund to the enforcement division, but would not elaborate on the issue. Meanwhile, Ms. Gillett said the OSC is not responsible for reviewing the conduct of brokerage firms and their trading of ABCP held in their own accounts, or their sales of commercial paper to clients in the summer.

The Globe and Mail has reported that many public companies are furious because they believe that their banks sold them notes in late July and early August without fully disclosing the information they knew about behind-the-scenes turmoil in the commercial paper market.

In filings related to two recent lawsuits, Canaccord Capital Corp. has alleged that Bank of Nova Scotia received non-public information about commercial paper in July and began reducing its own holdings while continuing to pitch the investment to clients - including Canaccord. Scotiabank has denied the allegations.

Ms. Gillett said matters involving brokerage firms fall under the jurisdiction of the Investment Dealers Association of Canada (IDA), a self-regulatory body.

Alex Popovic, head of enforcement for the IDA, would not comment on whether the IDA is reviewing commercial paper trading by investment dealers.

© 2007 The Globe and Mail. All rights reserved.

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