The Canadian Securities Administrators have launched new
proposals to amend the disclosure and corporate governance
requirements applicable to venture issuers, including the
streamlining of the interim MD&A requirements.
The proposals are a second attempt by the CSA to change venture
issuer disclosure requirements and improve corporate governance.
The previous proposal involved a new disclosure regime which lost
support from the venture issuer community which considered it too
burdensome to transition to a new regime during a challenging
The new proposals purport to have the needs and expectations of
venture investors in mind, by streamlining the disclosure
requirements for venture issuers to allow their management to focus
on the growth of their businesses.
One of the principal changes proposed is to modify the MD&A
disclosure currently required for interim periods to allow venture
issuers without significant revenue to prepare a summary document
referred to as "quarterly highlights" in lieu of the
current Form 51-102F1. The quarterly highlights is intended to be a
short discussion of no longer than one to two pages about the
venture issuer's operations and liquidity. At this early stage,
the CSA have not provided a definition or thresholds for what they
consider to be "significant revenue". The CSA may also
want to consider measures other than revenue to determine whether a
venture issuer is too large to be allowed to use the streamlined
The quarterly highlights would be optional as venture issuers
could decide to continue to prepare their interim MD&A under
the current requirements.
Business Acquisition Reports
The proposals increase the threshold for disclosure of a
business acquisition by venture issuers. Under the proposals, the
significant asset test and investment test thresholds would be
increased from 40% to 100% and therefore, venture issuers would be
required to include financial statements of the businesses they are
acquiring in their prospectuses or information circulars in fewer
cases. Also, the CSA propose to eliminate the requirement for
venture issuers to prepare pro forma financial statements.
The CSA also propose to reduce the executive compensation
disclosure requirements for venture issuers. Disclosure would only
be required for the CEO, the CFO and one additional highest paid
executive officer. In addition, the number of years of disclosure
would be reduced from three to two years and the requirement to
calculate and disclose the grant date fair value of stock options
and other share-based awards in the summary compensation table
would be eliminated. Venture issuers would instead be required to
disclose detailed information on options or awards issued, held and
Alternatively, venture issuers could choose to comply with the
current executive compensation disclosure requirements.
New Audit Committee Requirements
The CSA propose to require that venture issuers have an audit
committee consisting of at least three members, the majority of
whom must not be executive officers, employees or control persons
of the venture issuer. Venture issuers are currently exempt from
the audit committee composition requirements under securities laws,
but the policies of the TSX Venture Exchange impose audit committee
requirements which are reflected in the CSA proposal.
Changes to Prospectus Requirements
The proposed changes to continuous disclosure would also be
reflected in the disclosure required for prospectuses. For the
purposes of an IPO by an issuer that will become a venture issuer,
the issuer would only be required to provide audited financial
statements and describe its business and history for the previous
two years instead of the previous three years.
Deadline for Comments
Comments on the proposals are due to members of the CSA by
August 20, 2014.
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