Canada: Final Amendments To The Public Offering Marketing Rules

On Thursday, May 30, 2013, the Canadian Securities Administrators published final amendments (“the Amendments”) to the prospectus pre-marketing and marketing regimes in Canada for issuers other than mutual funds. Provided necessary ministerial approvals are obtained, the Amendments will come into force on August 13, 2013.

The purpose of the Amendments is to clarify and increase the range of permissible pre-marketing and marketing activities in connection with prospectus offerings. The Amendments accomplish this by: 

  • easing pre-IPO marketing restrictions in limited circumstances by allowing  investment dealers to determine interest in certain initial public offerings before filing a prospectus (referred to as “testing of the waters”),
  • providing legislative guidance in respect of (i) the use of term sheets, (ii) marketing materials and (iii) the conduct of road shows to market an offering, and
  • providing much needed clarity regarding certain developed practices in connection with “bought deal” distributions.

Testing of the Waters for Certain Initial Public Offerings

The Amendments expressly allow certain non-reporting issuers, through an expressly authorized investment dealer, to determine interest in a potential initial public offering by way of limited confidential communication with accredited investors. The “testing the waters” exemption is intended to help investment dealers and issuers assess interest in a potential IPO in advance of incurring the costs or preparing and filing a preliminary prospectus.

Under the Amendments, testing of the waters can occur with any “accredited investor” however must be complete at least 15 days prior to the filing of the preliminary prospectus.

An investment dealer must ensure that any information provided to an accredited investor during “testing of the waters” is held in confidence by the investor and not used for any purpose other than assessing the investor’s interest in the offering until the earlier of

  • the time the information has been generally disclosed in a preliminary long form prospectus or otherwise, or
  • the time the issuer has confirmed in writing that it will not be pursing the potential offering.

Term Sheets and Marketing Materials

The Amendments distinguish between “standard term sheets” (which contain only limited information about the company and the offering) and “marketing materials” (a more detailed document regarding the company and the offering).

  • Standard term sheets must contain prescribed cautionary language and generally, other than contact information for investment dealers or underwriters, may contain only certain limited, prescribed information that has been disclosed in or derived from the prospectus (or, in the case of a bought deal, the news release, the issuer’s continuous disclosure record or subsequent preliminary prospectus).

    Standard term sheets will not be required to be filed on SEDAR or incorporated into a prospectus, although standard statutory prohibitions on misleading or untrue statements would continue to apply to term sheets.
  • Marketing materials include a written communication intended for potential investors regarding a distribution of securities under a prospectus that contains material facts about the issuer, the securities or the offering (other than a prospectus, standard term sheet or other permitted prospectus notice). Prior to the use of marketing materials, the issuer must approve a template version of the materials in writing and must file a template version of the materials on SEDAR. If marketing materials are used during the waiting period, a template version of the materials must be included in the final prospectus. The template version of the marketing materials is a version that can be modified to a limited extent by the investment dealer to make it more specific to the dealer. Similarly, an investment dealer may not use marketing materials after obtaining a receipt for a final prospectus unless the template has been, or has been deemed to be, incorporated into the final prospectus.

The Amendments permit comparables (i.e., information that compares the issuer to other issuers) to be included in marketing materials provided to investors with such comparables not being subject to civil liability if certain conditions (including confidential filing of the comparables with the regulators and additional risk disclosure) are met. The use of comparables however, remain subject to statutory prohibitions on misleading and untrue statements. 

Road Shows

The Amendments expressly permit investor “road shows”, both in the context of  bought deals and marketed offerings.  The Amendments set out certain processes and procedures to be followed by issuers and investment dealers when conducting road shows and include:

  • asking any investor attending the road show in person, by telephone conference call, on the internet or by other electronic means to provide their name and contact information,
  • keeping a record of any information provided by the investor, and
  • providing the investor with a copy of the prospectus. 

In addition, the Amendments now clarify that members of the media can attend road shows in their capacity as members of the media, rather than only as potential investors. However, guidance contained in the related companion policy notes that members of the media should not be specifically invited by the issuer or investment dealer, and reminds issuers that a prospectus offering should not be marketed in the media.

Clarifications Regarding Bought Deal Practices

Currently, marketing activities prior to the filing of a preliminary prospectus and the issuance of a receipt by the applicable securities regulatory authority are only permitted in the context of a bought deal financing, and then only to permit obtaining expressions of interest. The Amendments maintain the bought deal exemption, but also clarifying certain matters with respect to its use and availability. In particular, the Amendments:

  • permit bought deals to be enlarged by up to 100% of the original deal size,
  • set-out regulations regarding when and under what circumstances the price or size of a bought deal can be reduced,
  • permit additional underwriters to participate in the bought deal, though a bought deal agreement cannot be conditional upon syndication; “confirmation clauses” will, however, be acceptable in limited circumstances,
  • provide for, and regulate, road shows after launch but prior to filing the preliminary prospectus,
  • provide that the “bought deal agreement” cannot have a “market-out” clause and clarifies and restricts the use of a “due diligence out”, and
  • provide additional guidance regarding discussions between an issuer and a dealer prior to the filing of a prospectus, and at which point such discussions have “sufficient specificity” to trigger the commencement of a distribution, requiring use of the exemption.

A full copy of the Amendments is available on the websites of various CSA members, including the Ontario Securities Commission at

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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Gregory Hogan
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