The Capital Markets Modernization Taskforce was established in February 2020 and mandated to make recommendations to modernize Ontario's capital markets regulation. An initial report was published in July 2020 for consultation and received significant feedback. A product of input from over 110 stakeholders, the taskforce released its final report on January 22, 2021.
In a five-part series, we summarize the taskforce's recommendations that could significantly change Ontario capital markets. In Part 1 we outline recommendations aimed at streamlining issuer's disclosure requirements to prevent filings that are duplicative or do not serve the originally intended purpose.
Streamlining existing filing requirements
The taskforce made several recommendations designed to streamline Ontario's continuous disclosure regime, including:
- Combining periodic disclosure: The taskforce recommends combining the form requirements for the annual information form, MD&A, and financial statements. This aligns with the U.S. and eliminates duplication between disclosure that is common across these documents, such as risk factors. The taskforce also recommends that issuers be permitted to combine a simplified prospectus into the annual disclosure document, further eliminating duplicative disclosure.
- Eliminating material change reports: The taskforce recommends that issuers have the option to file a news release regarding a material change instead of filing a separate material change report. Many issuers currently file a material change report that simply attaches a press release announcing the change. This recommendation would codify this practice into law.
- Changes for investment fund issuers: The taskforce recommends eliminating Interim Management Reports of Fund Performance and streamlining the contents of the Management Report of Fund Performance to reflect the information that is otherwise available to investors (including as a result of the Fund Facts disclosure requirement). The taskforce further recommends that Ontario streamline other reporting and regulatory requirements applicable to investment funds.
- Electronic delivery: The taskforce recommends adopting an access equals delivery model to replace traditional mail delivery of filings including prospectuses, annual and interim filings, and management reports of fund performance. The recommendations also include providing for electronic delivery of proxy voting materials and other meeting-related documents.
New disclosure and enforcement rules
The taskforce recommends a number of new continuous disclosure requirements and an enforcement tool to ensure the OSC can enforce disclosure rules.
- Enforcement of disclosure: Many of the OSC's compliance tools are currently focused on prospectus requirements. However, public disclosure other than prospectus disclosure is becoming an important way in which issuers access capital markets. The taskforce recommends that the OSC be given the power to impose terms and conditions on issuers in connection with compliance reviews, such as orders relating to cease trading of distributions or the suspension of an issuer's ability to rely on prospectus exemptions.
- Standardized disclosure for equity-based compensation: Investors expressed concerns that it is difficult to determine the total compensation that a reporting issuer's management receives in the form of securities grants and it would be more user friendly to include exercises of options in the Statement of Executive Compensation. The taskforce recommends that the OSC and the CSA consult on and propose amendments to the required Statement of Executive Compensation, which include a mandatory look-back analysis, disclosure of all value vested or realized under prior grants of security-based compensation arrangements and adopting a standard valuation methodology.
- Proxy advisory reports: The taskforce recommended introducing a regulatory framework for proxy advisory firms (PAFs). The taskforce also recommends a new statutory right of rebuttal for issuers. The rebuttal would be published in the PAF report but would only be available where an issuer files a management information circular at least 30 days prior to the meeting date.
Option for semi-annual reporting
- Semi-annual reporting for eligible issuers: All public issuers are required to file financial reports and analysis quarterly. The taskforce notes that the cost of preparing this disclosure exceeds the benefit for smaller developing issuers that may not experience significant changes that would be reflected in financial statements. The taskforce recommends that eligible issuers be permitted to prepare and file this information semi-annually as opposed to quarterly. Eligible issuers include those with less than $10 million in annual revenue and have a 12-month continuous disclosure record without default.
- Majority shareholder approval required: The taskforce further recommends that if an issuer wants to move to semi-annual reporting, it should be required to obtain majority shareholder approval, excluding votes cast by related parties of the issuer. A confirmatory shareholder vote would be required at least every three years. Issuers that report semi-annually would be excluded from eligibility from certain capital raising methods, including a new offering model that was proposed by the taskforce.
In Part 2 of this series we will discuss the taskforce's recommendations for changes to capital raising requirements.
The taskforce's final report can be accessed here: https://www.ontario.ca/document/capital-markets-modernization-taskforce-final-report-january-2021
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