Canada: SEC Proposes New Disclosure Requirements and Implements Provisions of Dodd-Frank Act

On September 17, 2010, the U.S. Securities and Exchange Commission (SEC) proposed amendments to its rules designed to improve the qualitative and quantitative disclosure in annual and quarterly reports regarding the short-term borrowing of registrants. See SEC Release No. 33-9143 at In addition, the SEC has also implemented certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

Canadian foreign private issuers filing annual reports on Form 40-F and relying upon the Multijurisdictional Disclosure System (MJDS) to make registered offerings of securities in the United States are not directly affected by the proposed amendments. However, the SEC has requested comment on whether the proposed amendments should also apply to MJDS filers. Canadian foreign private issuers filing annual reports on Form 20-F and not relying on the MJDS would be required to include the enhanced disclosure on short-term borrowings in their annual report and registration statements if the proposed amendments are adopted.

On September 17, 2010, the SEC issued a companion release that provides new interpretive guidance intended to improve the discussion of liquidity and capital resources in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). See SEC Release No. 33-9144 at The Osler Update on the SEC's interpretive guidance on liquidity and capital resources can be found here.

Proposed Qualitative & Quantitative Short-Term Borrowings Disclosure

The SEC has proposed amendments to its rules that, if adopted, would require a new section in MD&A providing tabular information and narrative analysis about a registrant's short-term borrowing arrangements. The proposed amendments would codify the Guide 3, Statistical Disclosure by Bank Holding Companies, provisions for disclosure of short-term borrowings applicable to bank holding companies in Regulation S-K. Such requirements would apply to both financial and non-financial companies and require qualitative as well as quantitative disclosure for certain short-term borrowing arrangements.

As defined in the proposing release, "short-term borrowings" would mean amounts payable for short-term obligations that are:

  • federal funds purchased and securities sold under repurchase agreements;
  • commercial paper;
  • borrowings from banks;
  • borrowings from factors or other financial institutions; and
  • any other short-term borrowings reflected on the registrant's balance sheet.

Proposed Tabular Disclosure

For each specified category of short-term borrowings, registrants would be required to provide MD&A tabular disclosure of:

  • for all registrants, the amount outstanding in each specified category at the end of the reporting period and the weighted average interest rate for those borrowings;
  • for registrants meeting the proposed definition of "financial company" 1:
    • the average amount outstanding in each specified category for the reporting period computed on a daily average basis (i.e., the amount outstanding at the end of each day, averaged over a reporting period) and the weighted average interest rate on those borrowings; and
    • the maximum daily amount outstanding in each specified category (i.e., the largest amount outstanding at the end of any day in the reporting period).
  • for non-financial company registrants 2:
    • the average amount outstanding in each specified category during the reporting period, using an averaging period not to exceed one month, and the weighted average interest rate for those borrowings; and
    • the maximum month-end amount of each specified category short-term borrowings during the reporting period.

Both financial and non-financial companies would be required to disaggregate amounts by currency or interest rate in the table to the extent necessary to prevent aggregate amounts from being misleading, including, for example, the timing and exchange rates used for currency translations and any other pertinent data relating to the calculation of those disclosed amounts.

Proposed Narrative Disclosure

To provide context to the tabular disclosure, the narrative discussion of short-term borrowings arrangements is intended to provide a comprehensive discussion of the registrant's overall approach to, and role of, short-term borrowings in funding its operations and business plans. The discussion would be required to include:

  • a general description of the short-term borrowings arrangements included in each category (including any key metrics or other factors that could reduce or impair the registrant's ability to borrow under the arrangements) and the business purpose of those arrangements;
  • the importance of any short-term borrowing arrangements to liquidity, capital resources, market-risk support, credit-risk support or other benefits;
  • the reasons for the maximum amount for the reporting period, including any non-recurring transactions or events or application of proceeds from borrowings; and
  • the reasons for any material differences between average short-term borrowings for the reporting period and period-end short-term borrowings.

This proposed short-term borrowings discussion and analysis is intended to highlight short-term financing activities and to supplement the other MD&A requirements relating to liquidity and capital resources. In preparing short-term borrowings disclosure, a registrant will generally need to consider its disclosures of (i) cash requirements presented in the contractual obligations table, (ii) off-balance sheet arrangements and (iii) other liquidity and capital resources. 3

Applicable Reporting Periods

The new short-term borrowings disclosures would be applicable to annual and quarterly reports (foreign private issuers would only be required to disclose annually) and registration statements.

  • For annual reports, information would be presented for the three most recent fiscal years and for the fourth quarter,4 except that the proposed amendments for registrants not currently subject to Guide 3 disclosure requirements contemplate a yearly phase-in of the requirements for comparative annual data until all three years are included in the annual presentation.
  • For quarterly reports, both tabular and narrative disclosure would be presented for the relevant quarter with the same level of detail as would be provided for annual periods, but without a requirement for comparative data.
  • For registration statements with audited full-year financial statements, short-term borrowings disclosure for the three most recent full fiscal year periods and interim information for any subsequent interim periods (consistent with general MD&A requirements and instructions applicable to the relevant registration statement form requirements) would be required, but subject to the same phase-in requirements for companies not currently subject to Guide 3 disclosure requirements.

In addition, the proposed disclosure requirements would require registrants to identify material changes from previously reported disclosures so that any such changes would be highlighted.

Application to Foreign Private Issuers and MJDS Filers

The proposed amendments would not apply to Canadian foreign private issuers that are MJDS filers. However, the SEC has specifically requested comment on whether the proposed amendments should also apply to MJDS filers. All other foreign private issuers (including Canadian foreign private issues not eligible to use MJDS) would be subject to the new short-term borrowing requirements, with the following accommodations:

  • The categories of short-term borrowings required to be disclosed would be based on the classifications for such types of short-term borrowings under the accounting principles which the registrant uses to prepare its primary financial statements.
  • The reporting periods applicable to U.S. domestic issuers would also apply to foreign private issuers, except quarterly reporting and disclosure for the fourth fiscal quarter would not be required in annual reports on Form 20-F. Since foreign private issuers are not required to file quarterly reports with the SEC, the proposed amendments would not apply to Form 6-K. However, the SEC encourages foreign private issuers to file interim short-term borrowing information on Form 6-K if required to make such information public under home country or stock exchange rules and regulations.

Based on these accommodations, a foreign private issuer (other than an MJDS filer) would only be required to update its short-term borrowing disclosure annually unless it files a registration statement which would require inclusion of interim period financial statements and related MD&A equivalent disclosure.

Application to Smaller Reporting Companies

The proposed short-term borrowings disclosure requirements would apply to smaller reporting companies, except that quarterly disclosure would not be required unless material changes have occurred during that interim period and information for the fourth fiscal quarter would not be required in annual reports. In addition, only two years of short-term borrowings information would be required for those smaller reporting companies providing financial information from continuing operations for only two years (consistent with existing SEC rules).


The SEC has also implemented the following aspects of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). For a more detailed discussion of the Dodd-FrankAct, see Osler Update, Financial Services Reform Adopted in United States: Sweeping New Rules Will Affect All U.S. Public Companies dated July 21, 2010.

Elimination of Auditor Attestation Reports for Non-Accelerated Filers

To implement Section 989G of the Dodd-Frank Act, the SEC has adopted amendments to its rules and forms to remove the requirement for a non-accelerated filer to include in its annual report an attestation report of the filer's registered public accounting firm on the company's internal control over financial reporting. See SEC Release No. 33-9142 (September 15, 2010) at Non-accelerated filers continue to be subject to the requirements of Section 404(a) of Sarbanes-Oxley Act of 2002 which requires those filers to include a report of management on the registrant's internal control over financial reporting in the registrant's annual report.

Broker Discretionary Voting

Section 957 of the Dodd-Frank Act requires all U.S. national securities exchanges to adopt rules that prohibit their members from voting on the election of directors of an issuer,5 executive compensation or any other significant matter as determined by the SEC. The following actions have been implemented to govern the voting of shares without specific voting instructions from the beneficial owners:

  • On September 9, 2010, the SEC approved a change to New York Stock Exchange (NYSE) Rule 452 that prohibits broker-dealers from voting uninstructed shares if the matter to be voted on relates to executive compensation. Revised Rule 452 provides that executive compensation matters include the three new "Say-on-Pay" votes created under new Section 14A of the Exchange Act. See SEC Release No. 34-62874 at NYSE Rule 452 had previously been amended to prohibit discretionary voting on director elections.
  • On September 24, 2010, the SEC approved an amendment to Nasdaq Rule 2251 that prohibits broker-dealers from voting on the election of directors, executive compensation, or any other significant matter, as determined by the SEC, unless instructed by the beneficial owner of the shares. See SEC Release No. 34-62992 at

Regulation FD

On September 29, 2010, the SEC implemented the requirements of Section 939B of the Dodd-Frank Act by amending Regulation FD to remove the specific exemption (Rule 100(b)(2)(iii)) from the rule for disclosures made to nationally recognized statistical rating organizations and credit rating agencies for the purpose of determining or monitoring credit ratings. See SEC Release No. 33-9146 at The general exemption for confidentiality agreements remains in Rule 100(b)(2)(ii) and companies should continue to include such provisions in their agreements with nationally recognized statistical rating organizations.


1. A "financial company" would mean a registrant that, during the relevant reporting period, is engaged "to a significant extent" in the business of lending, deposit-taking, insurance underwriting or providing investment advice, or is a broker or dealer, and includes, without limitation, an entity that is, or is the holding company of, a bank, a savings association, an insurance company, a broker, a dealer, a business development company, an investment adviser, a futures commission dealer, a commodity trading advisor, a commodity pool operator, or a mortgage real estate investment trust. The SEC has not, for purposes of the definition, quantified "significant extent."

2. For registrants who are engaged in both financial and non-financial operations, the proposed amendments would permit a registrant to bifurcate short-term borrowings disclosure for its financial and non-financial business operations with footnote disclosure enabling readers to understand how the operations were grouped.

3. The SEC is also contemplating revisions to the definition of "direct financial obligation" used in Items 2.03 and 2.04 of Form 8-K to conform to the proposed definition of short-term borrowings. The proposed amendments to the definition of "direct financial obligation" would retain the existing carve-out for obligations that arise in the ordinary course of business. However, a registrant that experiences a material increase in short-term borrowings during a reporting period that is not consistent with past practices generally will need to consider whether the underlying transaction falls within the meaning of "ordinary course of business" for purposes of Form 8-K.

4. The SEC is specifically requesting comment on the fourth quarter reporting requirement, and particularly whether material information for short-term borrowing activities prior to year-end would be lost without separate quarterly disclosure for the fourth quarter.

5 This requirement does not include a vote with respect to the uncontested election of a member of the board of directors of any investment company registered under the Investment Company Act of 1940.

James Laurie is a partner whose practice covers corporate financing, M&A and U.S. securities law matters for U.S., Canadian and other foreign clients. Matthew Sadofsky is an associate whose practice covers corporate finance, public company representation and U.S. securities law matters. Kate Coolican is an associate whose practice focuses on mergers & acquisitions, corporate finance and securities and general corporate matters

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.

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