Further to our March 2013 bulletin, we are reporting an update on the
2013 Proposals of the Canadian Securities Administrators (the
"CSA") to amend the reporting threshold, triggers and
related disclosure requirements under the "early warning
system". These proposals would have, among other things,
lowered the early warning threshold and required the inclusion of
certain derivatives in the reporting calculation.
On October 10, 2014, the CSA announced1 that they are
abandoning the following two key amendments:
Reducing the reporting threshold from 10% to 5%; and
Including "equity equivalent derivatives" for the
purposes of determining the threshold for early warning reporting
The CSA received over 70 comment letters in response to the 2013
Proposals. The CSA noted that some of the comments they considered
in their reasons for abandoning the two amendments included the
large number of small issuers in the Canadian market and the
limited liquidity of such issuers, the potential hindrance of an
investor's ability to rapidly accumulate or reduce a large
position, the desire to avoid signalling investment strategies to
the market, the difficulty of applying the term "equity
equivalent derivatives", and the significant administrative
and compliance burdens associated with additional reporting
The CSA stated that they plan to proceed with the remainder of
their proposed amendments, including requiring disclosure of 2%
decreases in ownership as well as requiring disclosure when a
shareholder's ownership interest falls below the reporting
threshold. In addition, the proposals will address security lending
arrangements by exempting lenders from disclosure requirements if
they lend shares pursuant to a specified securities lending
arrangement and by exempting borrowers, in certain circumstances,
from disclosure requirements if they borrow shares under a
securities lending arrangement.
The final amendments will also clarify the current application
of early warning reporting requirements to certain derivatives and
enhance disclosure requirements relating to derivatives. In
addition, the amendments will prohibit eligible institutional
investors from using the alternative monthly reporting system if
they solicit proxies on the election of directors or corporate
actions involving an issuer's securities. The scope of such
prohibition was not described in the CSA's announcement, but it
was noted that additional clarification would be included in the
The CSA intend to publish their final amendments in the second
quarter of 2015.
1 Canadian Securities Administrators, "Update on
Proposed Amendments to Multilateral Instrument 62-104 Take-Over
Bids and Issuer Bids, National Instrument 62-103 Early
Warning System and Related Take-Over Bid and Insider Reporting
Issues and National Policy 62-203 Take-Over Bids and
Issuer Bids", CSA Notice 62-307 (10 October 2014).
2 An "equity equivalent derivative" would
have been defined as a derivative that was referenced to or derived
from a voting or equity security of an issuer and that provided the
holder, directly or indirectly, with an economic interest that was
substantially equivalent to the economic interest associated with
beneficial ownership of the security (examples included
cash-settled total return swaps and contracts for differences).
The foregoing provides only an overview and does not
constitute legal advice. Readers are cautioned against making any
decisions based on this material alone. Rather, specific legal
advice should be obtained.
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