Canada's securities regulators are considering revamping
public companies' reporting obligations and the rules governing
capital raising in the public markets in light of changing investor
demographics, technological innovation and globalization. The
regulators have published a consultation paper identifying a broad range
of potential rule changes that they believe could reduce regulatory
burdens on companies without compromising investor
The most notable proposal on capital raising is to replace the
short-form prospectus system with an alternative public offering
model under which prospectus disclosure would focus on
deal-specific information, including a detailed description of the
securities being offered; the intended use of proceeds; the plan of
distribution; the issuer's consolidated capitalization and
earnings coverage; material risk factors related to the offering;
and any conflicts of interest.
In respect of dealers' liability under this model, the
consultation paper states that participating dealers would assume
liability for misrepresentations in all written marketing materials
and in the issuer's disclosure base. The specific materials
that would constitute an issuer's disclosure base are not
specified, so it is unclear whether the scope of potential
liability faced by underwriters—and their corresponding due
diligence obligations—would be broader, compared to the
current short-form and shelf prospectus offering regimes.
Other potential reforms relating to capital raising include the
reducing the number of years of audited financial statements
and MD&A that must be included in an IPO prospectus, i.e., the
current requirement of three years for non-venture issuers could be
reduced for all companies, or for companies with revenue below a
eliminating the rule that an auditor must review interim
financial statements in connection with prospectus offerings;
extending short-form prospectus eligibility to a broader group
adopting tailored rules to facilitate at-the-market offerings
and eliminate the need to obtain exemptive relief;
liberalizing the pre-marketing and marketing rules.
Ongoing Reporting by Public Companies
Potential reforms relating to public companies' ongoing
reporting obligations include the following:
permitting smaller companies to comply with reduced disclosure
and governance requirements, based on the size of their assets,
revenues or market capitalization; this would be an alternative to
the current distinction between venture and non-venture issuers, so
that all smaller companies would have lighter regulatory
obligations regardless of the stock exchange on which their
securities are listed;
consolidating the AIF, MD&A and financial statements into a
single disclosure document and eliminating overlapping
permitting all issuers, not just venture issuers, to prepare
quarterly highlights instead of MD&A, or permitting semi-annual
instead of quarterly reporting;
enhancing issuers' options for delivering materials to
eliminating MD&A requirements that overlap with accounting
rules under IFRS, such as those pertaining to financial
instruments, critical accounting estimates, changes in accounting
policies and contractual obligations;
in respect of Business Acquisition Reports (BARs),
increasing the financial thresholds for determining whether an
acquisition is significant so that BARs would be required less
eliminating some or all of the significance tests;
adopting industry-specific criteria for filing BARs;
eliminating the requirement to present pro forma financial
statements in BARs.
Scope of Feedback on Consultation Paper
Market participants are invited to submit comment letters on the
consultation paper. Comments are due by July 7,
2017. The regulators welcome feedback on what the top
priorities for reform should be; the potential impact of reforms on
investors; and whether there are rule changes beyond those
identified in the consultation paper that should also be
1 The consultation paper does not address
prospectus-exempt capital raising nor does it address the
regulation of investment funds. Reforms in those areas are being
considered separately by the regulators.
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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