On July 29, 2011, the Canadian Securities Administrators (the "CSA") published for comment proposed National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers (the "Draft Rule"). The Draft Rule proposes a new regulatory regime for issuers other than those with securities listed on the Toronto Stock Exchange, an exchange registered as a "national securities exchange" under section 6 of the U.S. Securities Exchange Act of 1934 or a marketplace outside of Canada or the United States that is not a designated venture market ("Venture Issuers"). The Draft Rule would apply to issuers listed on the TSX Venture Exchange and the Canadian National Stock Exchange. It also modifies the long-form prospectus rules and other instruments to harmonize the regime for Venture Issuers. The Draft Rule seeks to simplify the regulatory regime for Venture Issuers, as well as to provide investors with both targeted and enhanced information designed to facilitate their investment decisions in this segment of the market.
The Draft Rule also proposes, among other things, to streamline the rules governing prospectus offerings as well as certain exempt offerings that require prescribed disclosure. Small and medium-sized businesses (which would also qualify as Venture Issuers) that want to make an initial public offering would still be subject to the long-form prospectus rules, but the Draft Rule would be adopted along with a new prospectus form for Venture Issuers that is aligned with the new ongoing disclosure and governance requirements.
In addition, Venture Issuers filing a prospectus would only be required to include two years of audited annual financial statements, and would continue to benefit from the junior issuer financial statement exemption in the current long-form prospectus regime. Business acquisition reports for Venture Issuers would also be replaced by revised and enhanced material change reporting. In addition, no three and nine-months interim financial reporting and associated MD&A would be required.
The Draft Rule introduces a new form of annual report that combines in one document information relating to the business, governance, executive compensation, the audited annual financial statements and associated MD&A and CEO/CFO certifications. A similarly streamlined document would be required for mid-year reporting. The CSA's goal is to reduce duplication in disclosure documents to provide investors with a much shorter disclosure record to review. In addition, the Draft Rule provides that these streamlined documents would only be submitted on request, rather than through mandatory mailing to investors.
These new measures reflect a willingness of the CSA to recognize the specific concerns facing Venture Issuers and the important economic role played by small and medium-sized businesses in Canada. This new streamlined regime would allow Venture Issuers to further devote more resources to their growth and reduce their costs of compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
