Canadian Securities Administrators (CSA) Multilateral Staff Notice 51-336 Issuers Using Mass Advertising (the Notice) provides the views of staff of the securities regulators in Alberta, Ontario, Québec, Nova Scotia, New Brunswick and the Northwest Territories on TV advertisements apparently aimed at promoting interest in an issuer's securities.
Staff have observed the practice of employing short TV advertisements (15-30 seconds) that convey positive images of an issuer's business or prospects. If an issuer is a listed company, its stock symbols are typically shown prominently in the advertisement. If an issuer is an unlisted company, the contact information for investment inquiries is usually provided. Staff take the position that such advertisements appear to be for the purpose of promoting interest in the issuer's securities. Therefore, they might be "contrary to the securities legislation and misleading to investors". In staff's opinion, such advertisements do not appear to fall into the category of advertisements aimed at selling the products or services of the issuer or raising public awareness of the issuer. Staff believe that mass advertisements aimed at generating interest in the issuer's securities do not "reflect positively on issuers or the Canadian capital markets", may raise investor protection concerns or may be contrary to the public interest. Although the Notice specifically addresses TV advertisements, the same concerns apply to advertising through other means of mass communication (radio, Internet, social media or print).
The Notice is instructive in indicating that inappropriate mass advertising may trigger action under the regulators' public interest jurisdiction or prompt a review of the issuer's overall disclosure record and history of securities issuances, with a view to determining if there has been a breach of applicable securities laws. It is clear that issuers featuring their stock symbols or investor contacts in their advertisements should ensure that the content of the advertisement cannot be construed as misleading. However, further guidance from the securities regulators regarding permissible advertising would be welcome.
In expressing their views, staff refer to National Instrument 41-101 General Prospectus Requirements and Part 6 of the Companion Policy 41-101CP, which provides an interpretation of the advertising as trading. The definition of "trade" in securities legislation is expansive and includes various activities involving the sale of securities, including: "any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of" such activities. When such conduct occurs in the context of a trade that is a "distribution" (generally including any primary issuance of securities by the issuer), the prospectus requirement under securities legislation applies. Given that a prospectus generally qualifies the distribution of securities, rather than the associated advertising, the prospectus requirement is interpreted as effectively prohibiting such advertising activities.
This trade analysis has traditionally been applied to advertising in the absence of specific rules or guidance. However, it provides very little meaningful guidance to issuers and does not apply to advertising related to trading in the secondary market in the exempt market. Applying this analysis to brief 15-30 second commercials highlights the lack of effective regulation in this area.
A copy of the Notice is available here.
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