Canada: The Canadian Securities Administrators Propose Amendments To The Early Warning Reporting Regime

The Canadian Securities Administrators (the “CSA”) have published for comment proposed amendments to Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids (“MI 62-104”), National Policy 62-203 Take-Over Bids and Issuer Bids (“NP 62-203”) and National Instrument 62-103 Early Warning System and Related Take-Over Bid and Insider Reporting Issues (“NI 62-103”) (collectively, the “Proposed Amendments”). The public comment period will expire on June 12, 2013.

The Proposed Amendments include:

  • a decrease in the early warning reporting threshold from 10% to 5% of a public company’s outstanding shares;
  • a requirement for further disclosure upon a 2% decrease in share ownership or if there is a change in a material fact contained in an earlier report;
  • a requirement for a news release to be issued and filed if the share ownership percentage decreases to less than 5%;
  • a requirement for investors to include disclosure of equity derivative positions that are substantially equivalent in economic terms to conventional equity holdings and securities lending arrangements in the calculation of whether the early warning reporting threshold has been reached;
  • the exclusion of a security holder from the so-called “alternative monthly reporting system” if the person solicits, or intends to solicit, proxies from the security holders of a reporting issuer on matters relating to the election of directors of the reporting issuer or to a reorganization, amalgamation, merger, arrangement or similar corporate action involving the securities of the reporting issuer; and
  • new requirements for early warning disclosure via a new disclosure Form 62-103F1.

In light of the recent trend towards increased shareholder activism, the objective of the Proposed Amendments is to provide greater transparency about significant holdings of reporting issuers’ securities and to enhance consistency with several foreign jurisdictions, including the United States and the United Kingdom. However, the Proposed Amendments are not without drawbacks, particularly for those shareholders who have kept their shareholdings just below the 10% level.

Reporting Thresholds

The early warning reporting regime currently requires certain large shareholders to disclose their holdings in order to advise the market of an accumulation of a significant block of securities that may influence control of a reporting issuer. Under the current regime, every acquiror who acquires beneficial ownership of, or control or direction over, voting or equity securities of any class of a reporting issuer that, together with the securities of that class held by the acquiror, would constitute 10% or more of the outstanding securities of that class, must promptly issue and file a news release and within two business days from the day of the acquisition file a so-called “early warning report.”

Lowered Threshold for Acquisitions

In the CSA’s view, the reality of increasing shareholder activism and the ability of a shareholder holding 5% of the outstanding shares of a public company to requisition a shareholders’ meeting necessitates a need to lower the early warning reporting threshold from the current 10% to 5%. The CSA may have been influenced by the fact that the equivalent reporting threshold in the United States has been 5% for many years.

New Reporting Trigger for Decreased Ownership

Currently, the early warning regime does not explicitly require a person to file a further early warning report where there is a decrease in share ownership and a person must determine whether the decrease in ownership is a change of material fact and file a further report on the basis of that assessment. In the CSA’s view, decreases in ownership of an issuer are as relevant to the market as increases in ownership. Therefore, the CSA proposes to explicitly require disclosure of a 2% decrease in ownership.

Ownership Percentage Decreasing to less than 5%

The CSA proposes to require the issuance and filing of a news release and early warning report when an ownership percentage decreases to less than 5%.

Enhanced Disclosure in Early Warning News Releases and Reports

The CSA’s view is that the disclosure currently contained in many early warning reports filed in Canada, particularly with respect to the purposes of the transaction, is often inadequate, “boilerplate” in nature and does not sufficiently inform investors. As a result, the CSA is proposing an amendment to require more detailed disclosure in an early warning news release and an early warning report about the intentions of the person acquiring securities and the purpose of the acquisition.

Hidden Ownership and Empty Voting

Derivatives and Related Financial Instruments

In the CSA’s view, changes in the disclosure rules are required in order to ensure proper transparency of securities ownership in light of the increased use of derivatives by investors. Specifically, the CSA expressed concern regarding “hidden ownership," whereby a sophisticated investor may be able, through the use of equity swaps or similar derivative arrangements, to accumulate a substantial economic interest in an issuer without public disclosure and then potentially convert this interest into voting securities in time to exercise a vote. The CSA also expressed concern about “empty voting,” which may occur where an investor, through derivatives or securities lending arrangements, holds voting rights in an issuer and may possibly influence the outcome of a shareholder vote, even though the investor may not have an equivalent economic stake in the issuer. These types of arrangements may not be disclosable under current securities law requirements because the current requirements are primarily based on the concept of beneficial ownership of, or control or direction over, voting or equity securities. As a result, the CSA is proposing amendments that would require disclosure of an investor’s economic interest in an issuer as well as its voting interest in the case of securities lending arrangements. An investor would also have to disclose that it has entered into related financial instruments and other arrangements with respect to the securities of the issuer. The CSA has indicated that it is considering providing an exemption for lenders from the early warning reporting trigger for securities transferred or lent pursuant to “specified securities lending arrangements” that include an unrestricted ability to recall the securities before a meeting of security holders.

Inclusion of Equity Derivatives

The CSA is also proposing to amend the early warning reporting trigger in MI 62-104 and section 102.1 of the Ontario Securities Act so that an investor would be required to include, within the early warning threshold calculation, certain equity derivative positions that are substantially equivalent in economic terms to conventional equity holdings. In the CSA’s view, hidden ownership strategies can significantly undermine the early warning regime, since an investor may have practical access to securities held by the derivative counterparty but avoid a disclosure obligation which has traditionally been premised on legal ownership or control. The intention is to ensure that, for purposes of the early warning reporting threshold only, an investor would be deemed to have control or direction over voting or equity securities referenced in an “equity equivalent derivative.” Examples of instruments that the CSA intends to fall under this definition include total return swaps, contracts for difference and other derivatives that provide the party holding the notional “long” position with an economic interest that is substantially equivalent to the economic interest the party would have if it held the securities directly.

Securities Lending Arrangements

Under the current early warning disclosure form, a person that is required to file an early warning report (or alternative monthly report) is generally not required to disclose the general nature and material terms of securities lending arrangements. The CSA is of the view that greater transparency about and appropriate disclosure of securities lending arrangements are necessary, and therefore the CSA is proposing to remove the current carve-out for lending arrangements in early warning reports. The Proposed Amendments include requirements to disclose securities lending arrangements in effect at the time of a reportable transaction, even if that transaction did not involve a securities lending arrangement.

The Proposed Amendments would further require a lender of securities, who holds more than 5% of a public company’s outstanding shares, to report any loan that has the effect of decreasing the lender’s ownership of the applicable securities by 2% or more.

Changes to Alternative Monthly Reporting (“AMR”) Regime

The policy rationale behind the relaxed timing requirements for reporting under the AMR regime is that the regime is only available to eligible institutional investors with a passive intent concerning their ownership or control of the securities of a reporting issuer. The CSA is of the view that the current practice of allowing an eligible institutional investor who solicits, or intends to solicit, proxies from the security holders of a reporting issuer to use the AMR regime, even though the intent of the eligible institutional investor may be to actively engage with the security holders of the reporting issuer, is not consistent with the policy intent of the regime. To address this concern, the CSA is proposing to make the AMR regime unavailable for eligible institutional investors who solicit, or intend to solicit, proxies from security holders of a reporting issuer on matters relating to the election of directors or a reorganization, amalgamation, merger, arrangement or similar corporate action involving securities of the reporting issuer.

Anticipated Cost and Benefit of Proposed Amendments

The CSA anticipates that an enhanced scope of disclosure obligations will provide greater transparency about significant holdings of an issuer’s securities, which will serve to reinforce the quality and integrity of the early warning reporting regime and improve market efficiency.

On the other hand, the Proposed Amendments will result in increased compliance costs and other costs, including potential dissemination of investment strategies. Many market participants in Canada have, for many years, kept large shareholdings just below the 10% level specifically to avoid early warning disclosure requirements. Obviously, those participants will need to decide whether to reduce their holdings below the proposed 5% level or to comply with the new requirements. The Proposed Amendments may result in making take-over bids more expensive and a successful outcome more uncertain, since an offeror’s ability to obtain a “toe-hold” in the target’s shares without disclosure would be substantially reduced. Further, the Proposed Amendments will eliminate some of the perceived shareholder activist-friendly features of the early warning reporting regime. It, therefore, remains to be seen what impact these changes will have on the level and nature of shareholder activism in Canada.


Please note that this is only a summary of the issues highlighted in the Proposed Amendments. If you have any questions concerning this bulletin, the Proposed Amendments or how to contribute to the comment process, please contact any of the authors at Davis LLP.

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.