Canada: Canadian Securities Administrators Publish Proposals To Streamline Venture Issuer Disclosure

On May 22, 2014, the CSA published for comment proposed amendments to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), National Instrument 41-101 General Prospectus Requirements and National Instrument 52-110 Audit Committees (the Proposals). The Proposals are intended to streamline venture issuer disclosure requirements and make them more manageable for such issuers and more reflective of investor needs.

Venture issuers are those issuers whose securities are not listed on certain prescribed major stock exchanges. Most TSX Venture Exchange (TSX-V) and Canadian Stock Exchange listed issuers are venture issuers.


This initiative follows CSA attempts in 2011 and 2012 (later withdrawn) to introduce tailored venture issuer regulation (the Prior Proposals) that contemplated a separate continuous disclosure and governance regime for venture issuers. The Proposals retain elements of the Prior Proposals but, rather than creating a stand alone regime for such issuers, amend specific rules applicable to all reporting issuers.


The Proposals' key highlights are as follows:

  • Interim MD&A: Venture issuers without significant revenue in their most recently completed financial year will be given the option to prepare and file a streamlined and focused quarterly report in lieu of interim MD&A. This interim report, known as "quarterly highlights," is intended to be a brief but balanced and accurate description of the venture issuer's operations and financial condition during the interim period. While there is no obligation to update the issuer's annual MD&A in the quarterly highlights, material changes from plans disclosed in the annual MD&A should be disclosed in the highlights. Guidance in the Companion Policy to NI 51-102 provides examples of disclosure for capital pool, mining, and oil and gas venture issuers.

The CSA estimates many venture issuers will have the option to prepare quarterly highlights rather than interim MD&A and believes investors will benefit from the streamlined disclosure provided.

  • Audit Committee: Venture issuers will be required to have an audit committee that has a minimum of three members, all of whom are directors of the issuer and a majority of whom are not executive officers, employees or a control person of the issuer or affiliate. This would make NI 51 102 dovetail with the TSX V's own rules relating to audit committee composition. Currently the majority of a TSX-V-listed venture issuer's audit committee must not be officers, employees or a control person of the issuer or its affiliates or associates. Due to the reduced requirements for venture issuers, the temporary exemptions from the independence requirements for audit committee members available to non-venture issuers such as death, disability or resignation of a member, will not be available to venture issuers.
  • Executive Compensation Disclosure: The Proposals introduce a tailored form of executive compensation disclosure for venture issuers. Venture issuers would only be required to make executive compensation disclosure for a maximum of three executive officers: the CEO, CFO and one additional highest-paid officer. Currently disclosure is required for up to five executive officers. In addition, disclosure would only be required for a two-year period as opposed to the current three-year requirement. Venture issuers would not be required to disclose in their summary compensation table the grant date fair value of stock options and other equity-based awards. Detailed disclosure of such options and awards would, however, be required.

The Proposals provide that venture issuers who do not file an AIF or deliver to securityholders an information circular that contains the necessary executive compensation disclosure must provide such disclosure in a stand-alone document filed on SEDAR within 140 or 180 days of their year-end depending on when the venture issuer is required to hold its annual meeting.  

Currently the CSA is of the view that if a circular or an AIF is not filed within 140 days, then stand alone executive compensation disclosure must be filed within 140 days of the year-end. Recognizing that certain corporate statutes or organizational documents to which some venture issuers are subject allow an annual shareholders meeting to be held at a later date, the Proposals introduce an extended 180-day deadline for such issuers to avoid filing two executive compensation documents for the same financial year.

  • Business Acquisition Reports (BAR): The Proposals would reduce the instances when a venture issuer would be required to file a BAR on a significant acquisition by increasing the threshold for the asset and investment significance tests from 40% to 100%. The CSA is, however, seeking comment on whether significant acquisitions that fall within the 40% to 100% range should require disclosure in the following instances:
    • in a prospectus where the proceeds of the offering are being used to finance the acquisition or where the acquisition was recently completed and financed by a third party and any proceeds of the offering are being used to repay the financing; and
    • in a circular for a meeting at which shareholder approval of the acquisition is being sought.

The Proposals would eliminate the need to include in the BAR a pro forma financial statement.

  • Prospectus Disclosure: The Proposals conform the prospectus disclosure requirements with the continuous disclosure requirements proposed. In addition, audited financial statements required in a prospectus for an initial public offering (IPO) of an issuer who will become a venture issuer upon completing an IPO will be reduced to two years from the current requirement of three years. Certain other disclosure requirements will also only apply to a two-year period.

The Proposals will apply to reporting issuers that are not listed or quoted on any main exchange of the TSX, the Alpha Main, a US marketplace or a marketplace outside of Canada and the US (other than venture markets such as AIM or the PLUS markets).

Comments on the Proposals must be received by the CSA on or before August 20, 2014. The Proposals may be accessed here.

Norton Rose Fulbright Canada LLP

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