On March 13, 2013, the Canadian Securities Administrators (the "CSA") published a number of proposed amendments to Canada's early warning reporting system (the "Proposed Amendments"), such as including, but not limited to, reporting thresholds, triggers and disclosure requirements. The Proposed Amendments were intended, in part, to address concerns about the level of transparency of shareholders with sizable holdings of issuers' securities under the early warning reporting system.
The CSA received over 70 comment letters on the Proposed Amendments. After a considered review of these letters, the CSA announced on October 10, 2014, that it would not proceed with certain of the Proposed Amendments:
- reducing the early warning reporting threshold from 10% to 5%; and
- requiring shareholders to include "equity equivalent derivatives" for the purposes of determining the threshold for early warning reporting disclosure.1
The CSA noted that among other things, some of the comments it considered in dispensing with certain of the Proposed Amendments were:
- The unique features of the Canadian market in comparison to the United States and other jurisdictions, including the large number of smaller issuers with limited liquidity;
- A reduction of the early warning reporting threshold to 5% could potentially hinder investors' ability to rapidly accumulate or reduce a large position and signal shareholders' investment strategies to the market; and
- The additional reporting requirements would considerably increase companies' administrative and compliance obligations.
The CSA will publish the "Final Amendments" which will address certain key issues identified in the Proposed Amendments. The Final Amendments will, among other things, clarify the filing timeframes for early warning reports and news releases, and will require that shareholders:
- Disclose any decrease of any ownership interest that is 2% or more;
- Disclose when their ownership interest falls below the reporting threshold; and
- Provide additional enhanced disclosure in early warning reports.
The CSA also announced the Final Amendments would include amendments to disclosure requirements for certain derivatives and exempting disclosure requirements for securities lending agreements. The Final Amendments are expected to exempt lenders, and in certain circumstances borrowers, from disclosure requirements if shares are lent under a specified securities lending arrangement.
The Canadian markets are generally viewed as bidder friendly, partly due to the early warning reporting regime, which allows investors to acquire a sizable position in an issuer prior to making an announcement. As a result of the CSA's determination to maintain a 10% insider reporting threshold rather than reducing it to 5%, Canada is likely to maintain this reputation.
It is anticipated that the Final Amendments will increase the number of filings and provide greater transparency to the reduction in shareholder ownership interests and the rationale behind such reductions.
The Final Amendments are expected to be published by the CSA in the second quarter of 2015. Stay tuned for further updates in future editions of Miller Thomson LLP's Securities Practice Notes.
Footnote
1 Equity equivalent derivatives are positions which is referenced to or derived from a voting or equity security, which provides the holder with an economic interest that is substantially equivalent to the economic interest associated with the beneficial ownership of the voting or equity security.
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