Canada: Canada’s New Rules For Marketing Prospectus Offerings - 10 Things To Know About The Proposed Changes

On November 25, 2011, the Canadian Securities Administrators (CSA) published for comment proposed changes to the rules on the marketing of prospectus offerings (the proposed rules). We summarized some of the proposals in a previous Osler Update on December 1, 2011.

The market practice in Canada for bought deals, road shows and term sheet usage is long established, so it may come as a surprise to some market participants that there is currently very little law governing these activities. The CSA is therefore proposing rules that it believes codify established market practice and that expand the scope of permissible marketing activities during a prospectus offering in Canada. However, there are a number of possible unintended consequences resulting from some of the proposed rules that, if adopted in their proposed form, could result in significant changes to current Canadian practice. We highlight these issues in this Update and, through the public comment process, will raise these concerns with the CSA.

We encourage others to submit their own comments on the proposed rules to the CSA before the deadline of February 23, 2012.

Bought Deals

1. The conditions for upsizing a bought deal could be difficult to comply with and may preclude upsizing in many situations.

When a bought deal agreement is signed, the underwriters make a firm commitment to purchase a specific number of securities at a specific price. The underwriters are then allowed to solicit expressions of interest from potential investors, provided that the bought deal agreement requires the issuer to obtain a receipt for a preliminary prospectus not more than four business days after the date the bought deal agreement is entered into and certain other conditions are satisfied.

If the offering is oversubscribed after soliciting expressions of interest, issuers and underwriters have on occasion amended their bought deal agreement prior to filing the preliminary prospectus to enlarge or "upsize" the offering. The Canadian rules do not currently contain clearly prescribed requirements for upsizing a bought deal. The Canadian securities regulators have expressed policy concerns about upsizing, as it may provide a means for an underwriter to solicit expressions of interest for an offering that is ultimately significantly larger than the underwriter's original purchase commitment. These concerns have created uncertainty regarding when and how a bought deal can be upsized. The CSA is now attempting to resolve this uncertainty through specific rules prescribing the conditions for an upsizing. The proposed rules will also regulate making other amendments to bought deal agreements, and the termination provisions they may contain.

The CSA is proposing to cap the amount by which a bought deal can be upsized following launch to either 15%, 25%, 50% or some other prescribed percentage of the original size of the offering. (The CSA has requested comments on what the prescribed percentage should be, and we encourage market participants to express their view on the appropriate percentage through the comment process.)

Importantly, the proposed rules would also prohibit a bought deal from being upsized if doing so is "the culmination of a formal or informal plan to offer a larger number of securities under the short form prospectus devised before the execution of the original agreement". This condition is presumably aimed at making sure there is no intention to upsize before launching a bought deal, and that it is only excess demand or over-subscription that results in the upsized offering, rather than using a subsequent upsizing as a means of circumventing the spirit of the bought deal rules by permitting solicitations of expressions of interest in securities for which there is no pre-existing purchase commitment by an underwriter.

However, the wording of this condition is very broad, and may be viewed as applying to the discussions that issuers and underwriters will typically have regarding the interplay of offering price and offering size prior to the launch of an offering, and the impact that market demand will ultimately have on the underwriters' ability to complete a larger offering at a particular price. Further, it is fairly typical for the possibility of upsizing to be discussed as part of the original negotiation of the bought deal terms. It is not at all clear when such discussions amount to a "formal or informal plan".

We believe that this new condition may introduce needless uncertainty regarding the ability to upsize a bought deal, and should not be necessary in light of the proposal to cap increases at a fixed percentage of the original offering size.

2. There are other proposed restrictions on amending and terminating bought deal agreements that may be incompatible with current market practice.

The proposed rules appear to prohibit a bought deal agreement from being terminated unless all parties (including the issuer) decide not to proceed with the prospectus offering or unless a permitted termination event occurs. The proposed rules do not permit a bought deal agreement to contain a "market out" termination right, which is consistent with current market practice. However, bought deal agreements normally do contain other termination rights such as a "disaster out" and a "due diligence out". Additionally, the underwriting commitment in the bought deal agreement is usually subject to the subsequent condition that the issuer and the underwriters execute a mutually satisfactory form of definitive or formal underwriting agreement.

Under the proposed rules, it is not clear whether these types of termination rights and conditions would be prohibited, as they can result in the termination of a bought deal agreement without the consent of the issuer. If this is the intended result, it will require a significant change in current market practice. Further, it is not clear whether these restrictions apply only to the initial bought deal bid letter, or also apply to the definitive or formal underwriting agreement itself (which may unintentionally be captured by the definition of "bought deal agreement" as currently proposed). Finally, the proposed rules would prohibit any amendment to a bought deal agreement in order to add additional representations, warranties, indemnities and conditions, unless the amended agreement is "otherwise on the same terms" as the original agreement. It is not clear what is intended by this requirement. It is also not clear whether this requirement is intended to apply to the definitive or formal underwriting agreement, which by superceding and replacing the bought deal agreement may be considered to constitute an amendment to it.

The proposed rules also prohibit adding a new underwriter to the syndicate if this is "the culmination of a formal or informal plan to add that underwriter devised before the execution of the original agreement", which is not reflective of current market practice. Most bought deal agreements are executed by a single underwriter, in the interests of speed in bringing the offering to market, with the full expectation that other underwriters will subsequently be invited to join an underwriting syndicate. We do not understand the regulatory concerns with the current practice.

3. Term sheets for a bought deal may be sent only to institutional investors before the preliminary prospectus receipt is issued.

Between the launch of a bought deal and when a receipt is issued for the preliminary prospectus, term sheets may only be sent to institutional investors. Retail investors may receive a term sheet after a preliminary prospectus receipt is issued, but this will be of little practical benefit unless a portion of the offering is reserved for retail investors, as bought deals are generally fully allocated well before the preliminary prospectus is filed.

We believe that retail investors should be entitled to receive term sheets. We do not understand the policy rationale for limiting access only to institutional investors, particularly when it is proposed that all information concerning securities in the term sheet must be included in the launch news release or the issuer's continuous disclosure record.

The proposed rules would also require a copy of the preliminary prospectus to be sent to each permitted institutional investor that received the term sheet, whether or not that investor expressed interest in the offering or ultimately purchases securities. This is likely to create an unnecessary compliance burden for underwriters, as no purpose is served by providing further information about an offering to an investor that has already decided not to participate in the offering.

4. The bought deal press release will require more disclosure.

The proposed rules would require all information concerning the securities in the bought deal term sheet to be included in the launch press release, unless that information has been disclosed by the issuer in a previously filed document. For instance, some of the information in a typical bought deal term sheet that would need to be included in the launch press release under the proposed rules would include the stock exchange(s) where the issuer's securities are listed, the termination provisions for the underwriting commitment, the eligibility for investment of the securities for RRSPs, TFSAs and other registered plans and the underwriting fee. Current market practice is to not include this information in the launch press release. It is not clear why this information should be needed in the press release when investors participating in the offering will ultimately receive it through the term sheet or the prospectus.

5. The term sheet must be filed before it can be used.

Under current bought deal rules, the launch press release must be issued and filed on SEDAR prior to the commencement of solicitation activities. For timing reasons, this is typically handled by the lead underwriter on behalf of the issuer. Under the proposed rules, the term sheet would also need to be approved in writing by the issuer and the underwriters and filed on SEDAR before the term sheet is sent to institutional investors. We anticipate that this will result in the lead underwriter also filing the term sheet at the same time as the press release in order to be in a position to be able to distribute the term sheet to institutional investors immediately upon launch.

Road Shows

6. All information in a road show during the waiting period must also be included in the preliminary prospectus.

Under the proposed rules, all information in a road show during the waiting period must also be disclosed in the preliminary prospectus, with the exception of comparable company information, which may only be disclosed to institutional investors. We understand that the CSA believes this is largely consistent with current Canadian road show practice. However, the proposed rules are very restrictive and require that "all information" in the road show also be in the preliminary prospectus, rather than focussing only on material information. Further, the proposed rules do not distinguish between presentation material that is shown or distributed to investors and the statements made by management or others during the presentation itself.

We believe that it is impractical and inconsistent with current market practice to prevent management from being able to answer questions during a road show simply because the answers go beyond what is contained in the preliminary prospectus, or because of uncertainty regarding whether the answer entails providing any information (whether or not material) that is not included in the preliminary prospectus.

The CSA has also asked for comments on whether the use of comparable company information should be more regulated, including through rules aimed at reducing the risk of "cherry picking" comparables.

7. It is unclear whether a slide deck for a road show would always need to be filed on SEDAR and included or incorporated by reference in the prospectus.

For the typical road show that occurs during the waiting period, the proposed rules would prohibit an investment dealer from providing "written material" to an investor attending a road show, other than the preliminary prospectus and any amendment, unless the written material is treated as a term sheet under the proposed rules. This would mean filing the written material on SEDAR and including or incorporating by reference the written material in the prospectus.

It is not clear whether the filing requirement applies when investors are shown the slide deck but are not allowed to keep a copy of it. For example, the slides may be shown on screen during an in-person meeting, or may be handed out for viewing only during the meeting with all copies collected afterwards, or presented though the internet in a format that does not allow printing or downloading. It is unclear why written materials such as a road show slide deck should be filed on SEDAR and otherwise treated like a term sheet if they are being provided in a form that cannot be retained by investors.

8. The new road show requirements will create a significant impediment for Canada / U.S. cross-border IPOs.

The proposed rules would require that road show materials be filed on SEDAR, and the proposed companion policy provisions discussing road shows for cross-border IPOs appear to be premised on the assumption that this means that an electronic road show will constitute "road show materials" that must be filed on SEDAR, even if the content cannot be downloaded or printed. The CSA suggests that cross-border IPO issuers will no longer be required to apply for the type of exemptive relief previously granted in Canada for cross-border IPOs (and such relief will no longer be available absent unusual circumstances) because issuers will be able to file on SEDAR the same road show materials that they are permitted to file on EDGAR. As the CSA points out, for an internet road show for an IPO, the U.S. requirement is that road show materials either be filed on EDGAR or be "made generally available without restriction" through electronic means. The CSA appears to be under the impression that road show materials are typically filed on EDGAR in the United States, and that the need for the previously granted exemptive relief stemmed from a concern that the public availability of the road show materials on EDGAR would violate Canadian marketing restrictions, as the SEC's EDGAR website is available worldwide, including to Canadian investors.

In fact, road show materials are rarely, if ever, filed on EDGAR. U.S. underwriters typically insist on making a bona fide version of the road show available to the public without restriction for the express purpose of avoiding the alternative requirement to file the road show on EDGAR. Although a number of commercial services allow investors in the United States (and elsewhere, including Canada) to view the road show, access is always limited to viewing only, with no capability for investors (or others) to print or download the content, or access it after the permitted viewing period expires. U.S. underwriters are generally concerned that they would be subject to a significantly higher risk of frivolous and ultimately unmeritorious lawsuits being brought against them and the issuer by the active U.S. plaintiff securities litigation bar if a record of the contents of the road show slides and script is made permanently available on EDGAR.

Any road show material that is required to be filed on SEDAR in Canada will also be permanently available to the U.S. securities class action bar, and we anticipate that U.S. underwriters would raise the same concerns about that result in the context of a cross-border IPO. Further, because the proposed Canadian rules will still require restricting access to electronic road shows in Canada (even if only for the purpose of verifying the identity of the viewers), the U.S. rules will require that a bona fide version of the road show must also be filed on EDGAR as well. The result will be a significant change from current U.S. IPO practice.

We are concerned that this change from current practice may create a disincentive for IPOs to be conducted on a cross-border basis. We anticipate that U.S. issuers and underwriters will be reluctant to participate in a cross-border IPO unless road show content which is protected from downloading and printing is exempt from any SEDAR filing requirement, and the CSA continues to provide exemptive relief to allow unrestricted access to such road shows in Canada so that they may continue to be exempt from the SEC's EDGAR filing requirements.

9. The proposed rules do not specifically address confidential marketing in advance of a shelf prospectus take-down.

Confidential marketing in advance of a public offering, where investors agree to be restricted from trading and to keep the transaction confidential until it is announced or abandoned, has become more common in recent years, both in Canada and the United States. Most market participants would consider this type of confidential marketing to be permissible in Canada under current rules, as long as the issuer has a shelf prospectus in place and rules relating to insider trading and tipping are complied with.

A new provision in the proposed rules states that, if an issuer does not issue a news release about a potential drawdown under a shelf prospectus, dealers should consider measures to ensure compliance with applicable securities laws relating to selective disclosure, insider trading and trading by "tippees" (i.e., investors who are told about an offering being confidentially marketed). This would include obtaining confidentiality commitments from potential investors with respect to information about a potential offering.

Although this provision appears to acknowledge that a shelf takedown may be confidentially marketed in Canada, it may be helpful to market participants for the CSA to provide further clarity regarding its expectations for the conduct of such offerings.

10. The proposed rules do not provide guidance on when it is permissible to launch an offering following a "non-deal road show".

The CSA indicates in the proposed rules that it is aware of the practice that has developed for "non-deal road shows", where issuers and dealers will meet with institutional investors to discuss the business and affairs of the issuer. The proposed rules state that, if a non-deal road show was undertaken in anticipation of a prospectus offering, it would be prohibited under securities legislation. However, there is no guidance or prescribed "cooling off period" under the proposed rules regarding when it would be acceptable to launch a public offering following an issuer's non-deal road show.

This would appear to leave the current practice with respect to non-deal road shows unchanged, in that it would still be up to the issuer and dealers to satisfy themselves that a non-deal road show is not undertaken in anticipation of a prospectus offering, either based on the facts or by imposing their own cooling off period between the end of the non-deal road show and launch of a public offering.

Desmond Lee practises corporate and securities law with an emphasis on securities offerings, investment dealer regulation and public company issues. Rob Lando is a cross-border corporate and securities lawyer with significant practice experience in the United States and Canada. Craig Wright practises corporate and securities law with an emphasis on corporate finance, as well as mergers and acquisitions. Jeremy Fraiberg is Co-Chair of Osler's Mining Group.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions