Overview
In a welcome and long-awaited development for reporting issuers, the Canadian Securities Administrators (CSA) issued the finalized amendments (the AED Amendments) implementing its "access equals delivery" model for prospectuses (the "AED Model") on January 11, 2024.
Why is this good news for reporting issuers? Because, where applicable, it means modernized prospectus delivery and reduced administrative costs and burden by avoiding printing and mailing prospectuses to investors as currently required under securities laws. We highlight the key features of the AED Model, set to become effective April 16, 2024.
The "Access Equals Delivery" Model in Brief
The CSA explains that the goal of the AED Model is to benefit "both issuers and investors by providing a more cost-efficient, timely and environmentally-friendly manner of communicating information to investors than paper delivery."
Towards this end, the key change implemented by the AED Amendments is that delivery of a prospectus can occur simply by:
- filing the prospectus on SEDAR+, and
- in the case of a final prospectus, issuing a news release on SEDAR+ announcing the prospectus is available electronically or that a paper copy can be provided upon request.
Specifically, the AED Amendments provide that doing so will either satisfy the conditions of an exemption from the requirements under securities legislation to send a prospectus (in British Columbia, Québec and New Brunswick), or constitute delivery for the prospectus, generally, under securities legislation (in the other CSA members jurisdictions).1 The access procedures and the conditions of the exemption are structured differently among the various Canadian jurisdictions but they are substantially equivalent and the result is the same.
To Which Issuers and Disclosure Documents Does the AED Model Apply?
The AED Amendments have their origin in a consultation paper published by the CSA in January 20202 and a subsequent revised access model proposal published by the CSA in April 2022.3 The AED Amendments follow the CSA's 2022 proposed model, but also incorporate certain changes and clarifications.
The key elements of the AED Amendments for reporting issuers to appreciate are:
- They apply to all reporting issuers, including venture issuers, other than investment funds.
- They apply to most prospectus offerings, including long-form
prospectuses, short form prospectuses, preliminary prospectuses,
shelf prospectuses, prospectus supplements and post-receipt pricing
prospectuses.
- They do not apply to rights offerings, medium-term note offerings, and other continuous distributions under a shelf prospectus.
- Even though contemplated by the CSA's 2022 proposed model, they do not apply to continuous disclosure documents such as annual and interim financial statements and related MD&A.
- They still entitle investors to request electronic or
physical delivery of documents without charge, even where the
issuer is relying on the AED Model.
- However, should an investor request a copy of a preliminary prospectus, the 2-day time limit for delivery of the prospectus has been removed from the CSA's 2022 proposed model.
"Access Equals Disclosure" For Continuous Disclosure Documents?
For now, the status quo remains in the case of continuous disclosure documents. Although the CSA had originally proposed to extend the "access equals delivery" model to such documents, we understand that the CSA decided not to do so just yet based on stakeholder feedback relating to investor protection concerns. However, the CSA indicates that, in due course, they anticipate publishing a revised access model for continuous disclosure documents for stakeholder evaluation and comment. The Ontario Securities Commission (OSC) Statement of Priorities for 2024-20254 indicates that this could happen as soon as the end of fiscal 2023-2024.
The AED Model and Shelf Prospectuses and PREP Prospectuses
The AED Amendments take a different approach to shelf prospectuses and post-receipt pricing (PREP) prospectuses than prospectuses generally. Specifically, rather than requiring that the prospectus is electronically available at the same time a news release is issued for a shelf or PREP prospectus, the AED Amendments allow the news release to include a forward-looking statement that the prospectus will be available on SEDAR+ within two business days.
This exception (1) accommodates the fact that a news release is typically issued immediately after the pricing of a shelf or PREP prospectus is set (and with the filing of the associated prospectus to follow), and (2) eliminates the need to issue a second press release upon the filing of the prospectus. As a result, issuers can issue a single news release disclosing material information regarding a prospectus offering in these circumstances.
The AED Model and the Expiry of Withdrawal Rights
Prior to the AED Amendments, withdrawal rights available to investors under certain provincial securities laws (e.g. Ontario) expired at midnight on the second day after the investor received the prospectus. Under the AED Model, withdrawal rights may be exercised within two business days after the later of (1) the date public access was provided to the prospectus via SEDAR+ and the associated news release, and (2) the date the investor entered a contract to purchase the security. The CSA has clarified that a request for a paper or electronic copy of a prospectus by an investor will not impact the duration of the investor's withdrawal rights.5
Looking Forward
Given the postponement of its modernized access model for continuous disclosure documents, issuers may be wondering if and when another important CSA reform will soon see the light.
Last Fall, the CSA announced it was pausing its proposed amendments to National Instrument 51-102 Continuous Disclosure Obligations allowing for the consolidation of financial statements, MD&A and Annual Information Form (AIF) into a single document. The reason was to better align the reforms with the upcoming access model for continuous disclosure documents, which we now understand needs more work. We therefore watch with interest whether the CSA is planning for the parallel implementation of both continuous disclosure reforms.
Footnotes
1. The national instruments and companion policies modified by the AED Amendments include: (1) NI-41-101 General Prospectus Requirements, (2) NI 44-101 Short Form Prospectus Distributions, (3) NI 44-102 Shelf Distributions, and (4) NI 44-103 Post-Receipt Pricing.
5. See, for example, Annex C – Changes to Companion Policy 41-101CP to National Instrument 41-101 General Prospectus Requirements at Section 2A.2.
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.
