Timely Disclosure

Timely Disclosure

Updates and Commentary on Current issues in M&A, Corporate Finance and Capital Markets

Proposed Amendments to TSX Company Manual

At the end of May 2016, the TSX published for comment proposed amendments to the TSX Company Manual (Company Manual) 1) introducing website disclosure requirements for TSX-listed issuers; and 2) amending disclosure requirements regarding securities-based compensation arrangements (Arrangement) including the introduction of Form 15 – Disclosure of Security-Based Compensation Arrangements.

Website disclosure

The TSX is proposing that listed issuers will be required to maintain a publicly accessible website posting current copies of:

  • Constating documents
  • Corporate policies that impact meetings of securityholders and voting (e.g., maj voting policy, advanced notice bylaw)
  • Securityholder rights plans
  • Security-based compensation arrangements
  • Certain corporate governance documents (e.g., codes of conduct and ethics, whistleblower policies, governance policies, enviro policies, board mandates, position descriptions)

Although the majority of these documents can be (or at least should be) found on SEDAR, as the TSX points out, it is not always obviously apparent where these documents are under an issuer’s SEDAR profile, and categorization may differ from issuer to issuer. Moreover, the TSX has further noted that not all of an issuer’s corporate governance policies would need to be on SEDAR under securities law requirements.

As for the webpage itself, the only requirement of the TSX is that the website containing the documents be “easily identifiable and accessible from the issuer’s home page or investor relations page”. Note to issuers that share a webpage with other issuers: each issuer should have a separate, dedicated webpage on the website.

The TSX notes that the amendments reduce an issuer’s annual disclosure obligations for majority voting policies, as annual disclosure of this policy in a circular will no longer required be. However, query whether in practice this will really reduce disclosure obligations, as issuers will still likely need to provide shareholders with full voting particulars in the circular; the TSX itself acknowledges this reality.

Lastly, and importantly for any issuers who are foreign issuers or listed on multiple exchanges, there is no carve out currently proposed for foreign issuers or deferral to the requirements of another exchange for inter-listed issuers.

Proposed amendments to Part 6 of the Company Manual re security based compensation arrangements and introduction of form 15

The disclosure requirements regarding securities-based compensation arrangements are currently found in various sub-sections of section 613 of the Company Manual and, until now, a comprehensive list of such requirements has not been available.

Enter the proposed Form 15 – Disclosure of Security-Based Compensation Arrangements. Essentially, the Form 15 provides a checklist of disclosure required in circulars in respect of securities-based compensation arrangements in one place. This should be helpful for issuers who would like to assess in the most efficient manner whether their disclosure meets TSX requirements.

Note, however, that the Form 15 is not just a straight ‘cut-and-paste’ of the existing requirements . As the TSX has expressed, the proposed modified requirements seek to 1) modernize disclosure rules to account for the fact that securities-based compensation arrangements have moved past the traditional form of ‘common stock option plan’; and 2) remove requirements that were duplicative, i.e., those that already exist under securities law disclosure rules.

For example, in respect of 1), the proposed amendments require the continued disclosure of the number of awards currently outstanding under an Arrangement; however, the disclosure requirement has been modified to further require that if the award includes a multiplier, the maximum payout under the multiplier must be used to calculate the number of listed securities issuable under the award. In respect of 2), the following disclosure will be no longer be required under the proposed amendments: (i) maximum securities available to insiders; (ii) maximum securities available to one person or company; (iii) method for determining exercise price; (iv) method for determining purchase price; (v) formula for calculating market appreciation of stock appreciation rights (SARs); (vi) ability to transform stock options into SARs involving issuance of securities from treasury; (vii) term; (viii) causes of cessation of entitlement and effect of employee termination; (ix) assignability; (x) procedure for amending; (xi) financial assistance; and (xii) entitlements previously granted but subject to security holder ratification.

Note also that most (but not all) of the proposed circular disclosure requirements are applicable both in cases of plan renewal (generally every three years for a rolling plan), and in years when shareholders will not be voting on the plan.

The TSX has posed a (very helpful) chart summarizing the current disclosure vis a vis the proposed disclosure (scroll about a third of the way down the page to access):

The comment period on both of these proposed amendments is open until June 27, 2016.

Canadian Securities Administrators Implement Harmonized Report of Exempt Distribution

On April 7, 2016, the Canadian Securities Administrators (CSA) published amendments (Amendments) to the reporting requirements in National Instrument 45-106 Prospectus Exemptions (NI 45-106).  The amendments were previously published for public comment on August 13, 2015.  Concurrently, the CSA published CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under 45-106 (CSA Notice 45-308) which provides helpful information for industry participants in navigating through the Amendments which come into force on June 30, 2016.


Current Reporting Forms

The reporting forms required to report an exempt distribution presently consist of two forms, being Form 45-106F6 British Columbia Report of Exempt Distribution (Form 45-106F6) which is used for distributions in British Columbia and Form 45-106F1 Report of Exempt Distribution (Form 45-106F1) which is used for distributions in all other Canadian jurisdictions.  Issuers who meet an exemption under BC Instrument 45-533 may file a Form 45-106F1 in British Columbia instead of filing a Form 45-106F6.

As described below, the amendments replace Form 45-106F1 and Form 45-106F6 with a single, new Form 45-106F1 (New Form 45-106F1).

Current Filing Systems

Form 45-106F1 or Form 45-106F6, as applicable, are filed with the British Columbia Securities Commission (BCSC) through the BCSC eServices website and issuers are required to have a profile created on the BCSC eServices system before a filing can be completed.  Issuers who have a System for Electronic Document Analysis and Retrieval (SEDAR) profile automatically have a profile existing in BCSC eServices.  Issuers who do not have a SEDAR profile are required to submit a profile form to the BCSC to create their profile on BCSC eServices at least 24 hours before they can submit the reporting form.  BCSC eServices requires the filer to enter a few pieces of information from the Form 45-106F1/F6 into certain fields on the eServices submission page before attaching the reporting documents and completing the submission.  The Form 45-106F1 or Form 45-106F6 is typically populated in Word format, and then converted into PDF format before being uploaded to BCSC eServices.  In addition, the schedules to Form 45-106F1 and Form 45-106F6 are removed and filed as separate PDF documents.

Form 45-106F1 filings with the Ontario Securities Commission (OSC) are filed through the OSC’s Electronic Filing Portal (OSC Portal).  Unlike the BCSC eServices system, the OSC Portal does not require a profile to be created by an issuer in order to make a filing.  Also unlike the BCSC eServices system, where only a few pieces of information need to be entered into the submission page, the submission on the OSC Portal requires the filer to enter every piece of information in the entire Form 45-106F1 onto the submission page.  In addition, Schedule I to Form 45-106F1 must be completed in Excel format and uploaded to the submission page.  The Form 45-106F1 is typically originally populated in Word format, the Schedule I information is populated a second time in Excel format, and the filer populates the Form 45-106F1 in its entirety again electronically on the OSC Portal.  If the Form 45-106F1 is being filed only in Ontario, a filer may draft the Form 45-106F1 in the OSC Portal and the Excel version of Schedule I and forgo the creation of the Word version.

Currently, Form 45-106F1 filings in all other Canadian jurisdictions simply require the executed Form 45-106F1 to be mailed to the securities commission.  On May 24, 2016 the CSA will require the filing of Form 45-106F1 through SEDAR, subject to an exemption for foreign issuers outlined below.

Amendment Details

Investment Fund Filing Deadline

The amendments have changed the annual reporting deadline for investment funds to January 30 for the reporting of all distributions in the previous calendar year made using the exemptions in sections 2.3, 2.10 and 2.19 of NI 45-106.  Currently, investment funds have until 30 days after the end of the investments fund’s financial year.  The CSA have provided a transition period to allow investment fund issuers that file annually to file the current Form 45-106F1 or the New Form 45-106F1 for distributions that occur before January 1, 2017.

Format of Reporting Form

The amendments provide that all distributions on or after June 30, 2016 are to be reported using New Form 45-106F1 in all provinces and territories of Canada.  The New Form 45-106F1 replaces the current Form 45-106F1 and the current Form 45-106F6.  There are also two schedules to New Form 45-106F1, both of which are to be completed in Excel format.

Filing Systems

The New Form 45-106F1 will be filed with the BCSC through BCSC eServices, with the OSC through the OSC Portal and with all other jurisdictions through SEDAR (certain foreign issuers may still make paper filings, as provided below).  The New Form 45-106F1 can be drafted within the OSC Portal or within BCSC eServices and the filed version from the OSC Portal or BCSC eServices, along with the Excel versions of the two proposed schedules can be submitted to the other jurisdictions.

Exemption from Filing on SEDAR

Under National Instrument 13-101 System for Electronic Document Analysis and Retrieval (SEDAR), a foreign issuer that falls within the definition of “foreign issuer (SEDAR)” is not required to use SEDAR and may continue to file paper copies in all jurisdictions other than Ontario and B.C. (both of which require the use of their electronic filing systems).  A foreign issuer can voluntarily elect to use SEDAR by filing a SEDAR Form 5 Notice of Election by Foreign Issuer(SEDAR).

Details Required in the New Form 45-106F1

The following is the list provided by the CSA in Annex 2 of CSA Notice 45-308: Continue Reading

Women’s roles on boards and in executive officer positions – Canadian Disclosure Regime

Women’s roles on boards of directors and in executive officer positions has been an important topic of discussion in Canada and globally as well over several years. Recently, steps have been taken to require more disclosure and information from certain larger public companies based in Canada. This is to give potential investors more information about the gender diversity practices and policies of these corporations before deciding to invest.

As more fully described below, non-venture issuers (this would not include issuers listed on the TSX Venture Exchange) are required to “comply or explain” under the regulatory regime. To date, certain disclosures by non-venture issuers in their management proxy circulars remain inadequate. This will continue to be an area of focus for securities regulatory authorities so non-venture issuers need to review the requirements and ensure they are in compliance.

In Canada

On December 31, 2014, the securities regulatory authorities in Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Québec, Saskatchewan (collectively, the “Participating Jurisdictions”) implemented Rule Amendments to National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101).

Under the amendments, non-venture issuers must disclose, on an annual basis, usually in the issuer’s management proxy circular:

  • the number and percentage of women on the issuer’s board of directors and in executive officer positions;
  • director term limits or other mechanisms of board renewal;
  • policies relating to the identification and nomination of women directors;
  • consideration of the representation of women in the director identification and nomination process and in executive officer appointments; and
  • targets for women on boards and in executive officer positions.

The Rule Amendments require that if a non-venture issuer has not adopted the above mechanisms, policies, or targets or does not consider the representation of women, it is required to explain its reasons for not doing so, which is typically referred to as a “Comply or Explain” approach. The stated purpose of the Rule Amendments is to increase transparency for investors and other stakeholders and as a result, assist investors when making investment and voting decisions.

On September 28, 2015, CSA Multilateral Staff Notice 58-307 Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices was released (the “CSA Review”).

Canadian adoption rates vary by industry

As of June 2, 2015, there were 886 reporting issuers listed on the Toronto Stock Exchange (TSX) and subject to Rule Amendments. Of these, 722 non-venture issuers were reviewed for their compliance and disclosure related to the Rule Amendments. The following statistics were identified among the 722 issuers:

  • 49% have at least one woman on their board;
  • 60% have at least one woman in an executive officer position;
  • 15% have added one or more women to their board this year (not necessarily as a result of the Rule Amendments); and
  • 19% have adopted director term limits, while 56% have adopted other mechanisms of board renewal.
  • 14% disclosed the adoption of a written policy relating to the identification and nomination of women directors and related details of the policy and 65% disclosed that they had decided not to adopt a written policy.

Overall, the policy adoption rate was consistent across the country, but varied considerably by industry. The insurance, utility, communications and entertainment industries had the highest policy adoption rates at roughly 30%, while the oil and gas, technology, biotech, hospitality and environmental industries had the lowest rates, at less than 10%.

Set out below are a few tables taken from the CSA Review which help to show the participation of percentages and number of women on boards and executive officer positions by various industries.

The CSA Review concluded that a number of non-venture issuers had non-compliant and incomplete disclosure, as required by the Rule Amendments. In some instances, non-venture issuers appeared not to be aware of the requirements under NI 58-101 and had omitted disclosure. Examples of what the securities regulatory authorities consider to be appropriate disclosure, to allow investors to make informed decisions, were included in the CSA Review.

This remains an area of interest to the securities regulatory authorities and particularly to the Ontario Securities Commission (OSC), where Maureen Jensen was recently appointed Chair and Chief Executive Officer. Prior to her appointment, she led the initiative by the OSC on these disclosure initiatives.

Some global initiatives

In 2010, the U.S. Securities and Exchange Commission (SEC) amended its corporate governance disclosure rules to require companies to disclose how they incorporate diversity when searching for new board members.

Specifically, the SEC requires public companies to disclose if they consider diversity when searching for a new board member, how a company uses diversity when considering candidates, and if they have a policy that specifically addresses the consideration of diversity when searching for board candidates. However, neither the New York Stock Exchange (NYSE) nor NASDAQ has included any gender diversity requirements in their listing requirements.

In Australia, companies listed on the Australia Securities Exchange (ASX) must “comply or explain” whether gender objectives have been set by their boards and their progress against these objectives, if objectives have been set, and the proportion of women on the board in senior management roles.

Since September 2013, the Hong Kong Stock Exchange Corporate Governance Code requires the board of each listed company on that exchange to disclose whether it has adopted a diversity policy, and if not, to explain why. Companies that have adopted a policy must summarize the policy and the progress that has been made toward the objectives.


There is progress being made in terms of regulation and policy that require and encourage the disclosure and inclusion of women on boards and in executive officer positions. Greater gender diversity can lead to improved governance, new approaches and in some cases an improved bottom line for companies. Shareholders and other stakeholders in public and private companies are also taking an active role in requesting that boards and executive officers be more reflective of the gender diversity in the population. However, these issues must continue to be actively pursued by regulators, companies and stakeholders so that further progress can be made in the future.

The OSC sharpens its enforcement teeth

The enforcement efforts of the Ontario Securities Commission (OSC), the regulator that administers and enforces compliance with the provisions of the Securities Act (Ontario) and the Commodity Futures Act (Ontario), have had mixed success— at best. With a mandate to protect investors and ensure fair and efficient capital markets through monitoring compliance and enforcement measures in the securities industry in Ontario, the regulatory body has been struggling to be taken seriously. Having taken a chapter from the playbook of the American national Securities Exchange Commission (SEC), prosecuting individuals for Insider trading, tipping, and securities fraud, the initial results, which are highlighted below, were underwhelming. Now, in a renewed effort to assert its presence in the capital markets as a regulator with teeth, the OSC is taking new approaches, with more promising results.

Who can forget the infamous Bre-X gold mining fraud of the 1990’s? The Toronto Stock Exchange (TSX) lists more mining companies than any other exchange in the world. In 2015, approximately 1,485 mining companies were listed on the TSX. In the early 1990’s, one of those was Bre-X. That company bragged, in press releases issued under the authorities of John Bernard Felderhof, of huge gold deposits in Borneo, perhaps the largest gold find in history. When the whole story blew up and was shown to be massive fraud, and after a local geologist “:fell” to his death from a helicopter, and the stock price collapsed, Felderhof was prosecuted by the OSC for misleading press releases and insider trading. The trial took on a life of its own and on July 31, 2007, over eight years after the charges were laid, Felderhof was acquitted.

The OSC also found itself on the short end of another prosecutorial stick when it tried to convict David Bruce Fingold for illegal insider trading of shares listed on the TSX of Cineplex Odeon. Fingold, a then business partner with Garth Drabinsky, was the subject of a complaint made by Drabinsky to the OSC about Fingold’s sale of shares of Cineplex Odeon on the TSX, in a blackout period, arising from insider knowledge of poor financial results. Fingold successfully argued a mistake of fact defence, more frequently used inenvironmental and occupational health and safety prosecutions. In the result, Fingold was acquitted at trial , and then again when the OSC appealed.

Although the SEC was collecting an impressive number of convictions for insider trading, tipping, and securities fraud in the 1990’s and 2000’s, much to the credit of Preet Bharara, the OSC was not. Coupled with the legal and political setback of leading an unsuccessful attempt to establish a national securities regulator , the effectiveness of the OSC’s enforcement efforts was openly and publicly questioned. The OSC needed a new approach to regain the respect of the capital markets and the public.

The OSC’s lack of success in obtaining convictions in court resulted in a change of direction for enforcement. Leadership at the OSC adopted Administrative Monetary Penalties (AMPs). AMPs are used in a number of regulatory regimes, have significant procedural advantages for regulators, and have been approved by the Supreme Court even when the financial penalties are extremely high.

The advantages of AMPs for the OSC are, of course, disadvantages for those under investigation, because they include:

  • no presumption of innocence
  • less procedural process rights
  • no clear entitlement to Section 11 rights under the Charter, since an AMP is not held in law to be an “offence”

In addition to AMPs, the OSC is also imposing trading bans and disgorgement orders. This relatively new power of the OSC is not burdened with the presumption of innocence, due process, and Charter safeguards for the accused. One recent example of such an investigation and the OSC’s administrative, rather than prosecutorial success, involves a former Bay Street lawyer, Michael Finklestein and his alleged co-conspirators Korain Bobro, Howard Jeffrey Miller, and Francis Cheng, who were all brought before the OSC, rather than the courts, for an alleged insider trading and tipping scheme (PDF). After a hearing, they were given a total of $2,859,698 in AMPs, costs, and disgorgement orders (see OSC reasons for decision). Welcome to the new era of OSC enforcement.

This case is a cautionary tale that the OSC’s previous reputation of an ineffective securities regulator is changing. Having largely, but not exclusively, abandoned an American-styled prosecutorial model of regulatory enforcement, the OSC is clearly making headway to establish itself as a respected and more effective securities regulator. Further, the OSC is still prosecuting alleged offenders under the Securities Act. In fact, the OSC website tracks every court appearance of every accused, publicly on their website, which amounts to unnecessary detail and transparency, but is unequalled by any other regulator in Canada.

The OSC is also using its statutory authority to compel investigations of publicly traded companies when allegations of bribery or corruption, even outside of Canada, come to their attention. I have been involved in recent inquiries from both the OSC and the TSX about media reports of corruption of local representatives at a Canadian-listed mining company abroad. The allegations may not only offend locals, according to the Corruption of Foreign Public Officials Act . Further, the OSC is in the midst of a consultation process to implement a new whistleblower program. These developments give corporations, boards, senior management, and their legal advisors even more reasons to have an effective and meaningful corporate governance and legal compliance program and structure in place.

In conclusion, the importance of the OSC’s role in setting, communicating and enforcing standards in the financial and securities markets is greater than ever. Volatile stock markets in Canada and around the globe make investors and their advisors more vulnerable to exploitation, abuse and illegal activities. With the improved accountability and enforcement initiatives of the OSC, and its attendant respect, Ontarians and Canadians are better served.

CSA Adopt Changes to Early Warning Rules but Maintain 10% Reporting Threshold

On February 25, 2016, the Canadian Securities Administrators (CSA) announced the adoption of new rules enhancing the reporting requirements relating to the early warning reporting system. The new rules are expected to come into force on May 9, 2016. The original proposals were published on March 14, 2013 (see our April 9, 2013 publication Canadian Securities Regulators Publish Proposal for Enhanced Early Warning System). On October 10, 2014, the CSA published a revised notice that scaled back certain of the original proposals in response to various comments received (see our October 21, 2014 publication Canadian Securities Regulators Publish Revised Notice for Enhanced Early Warning System).

The highlights of the new rules are:

  • Reporting threshold to remain the same. Consistent with the October 10, 2014 notice, the CSA decided not to proceed with the original proposal to reduce the early warning reporting threshold from 10% to 5%. The original proposal was intended to align the Canadian rules with those in the U.S.; however, after receiving a number of comments on this proposal, the CSA determined that the 10% threshold is more appropriate in Canada.
  • Reporting decreases in ownership. Shareholders will now be required, after meeting the 10% reporting threshold, to report decreases as well as increases of 2% or more in their ownership. Shareholders will also be required to report when their ownership falls below the 10% threshold.
  • Enhanced disclosure. The new rules include more onerous disclosure requirements for early warning reports regarding a shareholder’s ownership and future plans as well as the purpose for the transaction being reported. The CSA intend that the new rules will ensure that changes to a shareholder’s intentions with respect to an issuer are more accurately disclosed. The new disclosure standard is more consistent with Schedule 13D reporting requirements in the U.S.
  • Alternative Monthly Reports. Eligible institutional investors will no longer be able to file alternative monthly reports if they engage in a proxy contest with management in connection with the election of directors or various corporate transactions.
  • News releases. The new rules make it clear that news releases regarding early warning reports must be issued by the opening of trading on the following business day.
  • Derivatives. Certain equity derivative positions will not count towards the 10% reporting threshold. This is in contrast to what was originally proposed by the CSA in 2013.
  • Securities Lending Arrangements. Pursuant to the new rules, borrowed securities can be excluded for purposes of the 10% reporting threshold if the borrowed securities are disposed of within three business days and the borrower does not actually vote or intend to vote the borrowed securities.
  • Certification. The new rules require that early warning reports are signed by the filer.

Time will tell if the timing’s right: CSA adopt the most sweeping changes to the Canadian take-over bid regime in a generation

On February 25, 2016, the CSA released the final version of the long-awaited changes to the Canadian take-over bid regime.  While the final rules are largely in line with the proposal that was released for comment almost a year ago, it is notable that the statutory minimum bid period has been shortened from 120 days to 105 days.  To summarize, the new bid regime will now require:

  • a 50% minimum tender requirement for all formal bids;
  • a ten-day extension of the bid once the minimum tender requirement is satisfied and all other conditions of the bid have been satisfied or waived; and
  • a minimum bid period of 105 days, subject to the target board’s ability to shorten the period.

The amendments will, for now, conclude the lengthy debate over striking the right balance between bidders and boards; however, it remains to be seen whether a 105 day minimum bid period will deter bidders from launching hostile bids in the first place.

As revealed in our 2015 Canadian Hostile Take-Over Bid Study, under the current regime, first-mover hostile bids succeeded almost 55% of the time, with that success rate materially impacted by the emergence of competition; first-mover bids succeeded only one-third of the time when competition emerged.  To the extent that the increased minimum bid period enhances the ability of a target board to find alternatives and thereby increase competition, bidders may determine that the time and expense of launching a first-mover bid is not justified given their more limited odds of success.

We also note that the CSA have elected not to amend their policy on defensive tactics to include any commentary on whether the use of shareholder rights plans in the new regime is per se an improper defensive tactic.  In that regard, it is not a stretch of the imagination to envision circumstances in which a board, in the exercise of its business judgment, adopts a rights plan with a permitted bid period lengthier than the new statutory minimum period.  Given that the amendments have been designed for the express purpose of providing a board with more time, one might expect a securities regulator to conclude that the minimum bid period is also a sufficient period and therefore cease-trade the plan.  However, the fact that the CSA chose not to foreclose the possibility that a board could treat the minimum bid period as a floor rather than a ceiling suggests that the outcome of a rights plan hearing in such circumstances is uncertain.

One of the CSA’s stated objectives in adopting the new rules is to “rebalance the current dynamics” among bidders, boards and shareholders.  On that front, there can be no doubt that the board’s hand has been strengthened — how much this additional leverage will impact hostile bid activity and M&A more generally remains to be seen.  We will be following this closely.

OSC Issues Recommendations on Insider Reporting

On February 19, 2016, the Ontario Securities Commission (OSC) published OSC Staff Notice 51-726 Report on Staff’s Review of Insider Reporting and User Guides for Insiders and Issuers (OSC Staff Notice 51-726).


OSC staff conducted a review of insider reporting and insider trading policies of 100 reporting issuers.  On average, each reporting issuer that was reviewed had 15 reporting insiders, resulting in the review of approximately 1,500 reporting insiders.

Results of the Review

In the case of approximately 70% of the issuers that were subject to the review, there was at least one reporting insider which had a compliance deficiency, requiring the reporting insider to file one or more new insider reports on the System for Electronic Disclosure by Insiders (SEDI) in order to correct the deficiencies (Material Insider Reporting Deficiencies).  Reporting insiders that were required to correct their Material Insider Reporting Deficiency were subject to late filing fees.

In addition, there were non-material deficiencies (Non-Material Insider Reporting Deficiencies) found in the reporting practices of insiders in the case of approximately 45% of the issuers reviewed.  Non-Material Insider Reporting Deficiencies resulted in correctional filings being required, however the reporting insiders were not subject to late fees or penalties.

Common Material Insider Reporting Deficiencies

Among the common Material Insider Reporting Deficiencies identified by OSC staff following its review were the following:

  • Failure by reporting insiders to set up an insider profile and file reports on SEDI.
  • Failure by reporting issuers to set up an insider profile for the issuer and complete insider filings to report purchases under a normal course issuer bid.
  • Discrepancies in the balances of securities held by insiders on SEDI and the issuer’s continuous disclosure filings.
  • Failure by holding companies holding 10% or more of a security of a reporting issuer to have their own insider profiles and reports when they are included as indirect holdings by another reporting insider.
  • Failure by reporting insiders to report the expiration of derivative securities.

Common Non-Material Insider Reporting Deficiencies

Among the common Non-Material Insider Reporting Deficiencies identified by the OSC staff following its review were the following:

  • Incorrect use of transaction codes.
  • Incorrect transaction dates.
  • Incorrect type of ownership and indication of registered holder’s name.
  • Incorrect set up of security designations by the issuer.
  • Failure by reporting insiders to update their insider profiles within 10 days of ceasing to be a reporting insider.
  • Failure by issuers to update their issuer profiles immediately upon any change in the information contained in the issuer profile supplement.

OSC staff also noted the limited use of issuer grant reports by insiders.

Approximately 85% of the issuers that were reviewed had insider trading policies in place and OSC staff found that most of the policies were in accordance with the best practices outlined in National Policy 51-201 Disclosure Standards.  Staff did note, however, that not all policies restricted derivative-based transactions or the grant of stock-based compensation during blackout periods.


OSC Staff Notice 51-726 includes a number of recommendations to assist both issuers and reporting insiders with insider reporting, including the following:


  • As responsibility to file insider reports remains with the reporting insider regardless of whether they use a third party agent, reporting insiders should periodically review SEDI to make sure their reports are being filed correctly.
  • Reporting insiders should be proactive and periodically review their insider profiles on SEDI to determine whether they continue to be shown as reporting insiders of issuers and whether their contact information is current.
  • Reporting insiders should be proactive and review information circulars annually and other CD records of the issuer on a regular basis to ensure their security holdings are properly reflected.


  • Issuers should be proactive and periodically review their issuer profile supplement to see if any updates are required and remind their insiders to review their insider profiles for accuracy and completeness.
  • Guidance on creating security designations can be found in CSA Staff Notice 55-316 Questions and Answers on Insider reporting and the System for Disclosure by Insiders (SEDI). However, issuers should contact the OSC if they have further questions to ensure new securities designations are set up properly in SEDI.
  • To communicate information about a grant in a timely manner and to help avoid late fees being charged against its insiders, issuers should consider filing an issuer grant report within 5 days of a grant.
  • Issuers should implement a process to annually verify the securities holdings communicated to them by insiders in order to avoid variances in the public records filed by the issuer on SEDAR versus the reports filed by insiders on SEDI.
  • Issuers should annually review their insider trading policies to ensure they align with current Canadian securities legislation.
  • Issuers should also adopt a written policy which, among other things, specifically prohibits derivative-based transactions, the grant of options and the setting of the exercise price during blackout periods. The written policy should also provide for a senior officer to approve and monitor the trading activity of all insiders, officers, and senior employees.

User guides for reporting insiders and reporting issuers are included as appendices to OSC Staff Notice 51-726.  The user guides are intended to assist reporting insiders and reporting issuers in conducting a review of their own reporting on SEDI.

Righting a Wrong: Canadian Regulators Improve the Rights Offering Regime

The various Canadian regulatory authorities recently overhauled how prospectus exempt rights offerings are to be conducted going forward, including allowing for larger financings to be completed in a shorter time frame with less extensive offering documents. As a result of these amendments (Amendments) which came into force on December 8, 2015, reporting issuers in Canada may now have a more viable avenue to raise funds from existing shareholders.

Rights offerings are viewed favourably by the regulators because they allow the then current securityholders of an issuer, who are often retail investors, to participate in a financing which typically offers securities at a discount to the market price, and avoid dilution.  For issuers, a prospectus exempt rights offering should be less costly than other forms of financing because brokers are not usually involved and a prospectus is not required to be filed. However, historically, prospectus exempt rights offerings prior to the Amendments have been uncommon and have been characterized as financings of last resort. In large part, issuers have chosen not to rely on prospectus exempt rights offerings because of limitations on the size of the financing (securities offered were limited to 25% of the issuer’s issued and outstanding securities) and the length of time required to complete the offering (the average time to complete a prospectus exempt rights offering was 85 days including 40 days between the filing of a draft circular and the acceptance by the regulators). This delay combined with the normally deeply discontinued right exercise price tends to result in the share price drifting down to the right exercise price so without a stand-by guarantor, there is a real possibility that few rights would be exercised. Further, certain foreign issuers have been unable to offer Canadian residents the ability to participate in rights offerings because the Canadian exemption was so limited when compared to other jurisdictions.

The major changes to the rights offering prospectus exemption include: •increasing the potential rights offering size to allow for an offering of up to 100% of the issued and outstanding securities, •no longer requiring regulatory approval of offering documents, and •simplifying the offering documents required, thereby significantly decreasing the time and cost required to complete a rights offering financing.

Although the exemption is now limited to reporting issuers, the Amendments appear to have created a useful equity financing alternative. In particular, an issuer which is having difficulty raising funds under the current economic conditions can consider seeking financing from its own securityholders under the rights offering exemption with a far reduced time and cost commitment.

Changes from the Proposal

While the Amendments adopted were substantially in the form provided for in the proposed amendments published by the Canadian Securities Administrators on November 27, 2014 as summarized in “A New National Rights Offering Exemption”, some minor changes were made based on comments received regarding the proposal.

The prospectus exemption created for securities issued to a stand-by guarantor as part of a prospectus exempt rights offering required such securities to be subject to a restricted hold period under the proposals, unless the guarantor was an existing securityholder. Under the Amendments as adopted, the securities issued to the stand-by guarantor will not normally be subject to a hold period (only a seasoning period on resale is applicable).

The “minimal connection exemption”, whereby the prospectus requirement would not apply to rights offerings where the number of securities and beneficial securityholders in Canada, and in a local jurisdiction, was minimal, was amended to remove the local jurisdiction requirement meaning the use of the exemption no longer requires that less than 5% of the beneficial securityholders reside in the local jurisdiction or that less than 5% of the number of securities are held by securityholders residing in the local jurisdiction.  The exemption will be available if less than 10% of the beneficial securityholders reside in Canada and less than 10% of the number of securities are held by them.

A requirement was included in the Amendments that an issuer must disclose in the required circular related to a prospectus exempt rights offering any material facts and material changes that have not yet been disclosed and a statement that there are no undisclosed material facts or material changes.

Toronto Stock Exchange and TSX Venture Exchange Guidance

On January 18, 2016, the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV) each issued additional guidance in light of the adoption of the Amendments (Exchange Guidance). While it is intended that the TSX Company Manual (TSX Manual) and the TSXV Corporate Finance Manual (TSXV Manual) will be formally amended in the future, the TSX and the TSXV have each issued Exchange Guidance in the interim to direct issuers.

The Exchange Guidance confirms that TSX or TSXV approval, as applicable, of the offering documents is still required prior to finalization despite no longer being subject to securities regulatory approval. The TSX requires filing of the offering documents five trading days prior to finalization while the TSXV does not provide a timeline.

Prior to the adopting of the Amendments, each of the TSX Manual and the TSXV Manual required issuers to resolve all issues raised by the TSX or the TSXV at least seven trading days prior to the record date. The Exchange Guidance has lowered the advance notice requirement to five trading days.

The TSXV indicates that it proposes to amend the TSXV Manual to lower the minimum subscription price to $0.01 for each security acquired on the exercise of rights. Until such amendment, the TSXV notes in the Exchange Guidance that it will grant waivers to the current $0.05 minimum rights subscription price requirement upon application provided the subscription price is not less than $0.01. The TSXV also proposes to amend the TSXV Manual to expressly provide that the rights are not required to be listed for trading and, until such amendment, issuers may apply for a waiver of the listing requirement.

Finally, the TSXV specifies that it is proposing to amend the TSXV Manual such that shareholder approval of the creation of a new control person of an issuer through a rights offering standby commitment will generally not be required provided the rights are listed for trading on the TSXV and the rights subscription price is equal to or less the market price minus the maximum allowable discount for private placements. The TSXV will also require the filing of a personal information form of a person providing a standby commitment if it may lead to such person owning or controlling, beneficially or as nominee, directly or indirectly, securities representing over 10% of the voting rights attached to outstanding voting securities of the issuer.

New Investment Dealer Prospectus Exemption Suitable for Retail Investors

Retail investors in British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick (Participating Jurisdictions) now have a new option by which they can participate in private placements. The securities regulators in the Participating Jurisdictions have adopted a prospectus exemption (Exemption) that allows issuers listed on a Canadian exchange to raise money by distributing securities to retail investors, subject to certain conditions, including that the investor has received suitability advice about the investment from a registered dealer.

Prior to the adoption of the Exemption, retail investors have had limited opportunity to invest in private placements as participation is generally limited to accredited investors, insiders and friends and family. The Exemption is designed to facilitate capital raising for listed issuers by increasing the investor base through allowing participation of retail investors in private placements, while maintaining appropriate investor protection. Securities issued using the Exemption will be subject to four month hold period.

In order for the Exemption to be used, the following conditions must be satisfied:

  • the issuer must be a reporting issuer in at least one Canadian jurisdiction;
  • the issuer must have a class of securities listed (the Listed Securities) on the TSX Venture Exchange, the Toronto Stock Exchange, the Canadian Securities Exchange or Aequitas Neo Exchange Inc;
  • the issuer’s public disclosure documents must be current;
  • the offering must consist of the Listed Securities, a unit consisting of a Listed Security and a warrant, or a security convertible into a Listed Security;
  • the issuer must issue a news release that includes a description of the offering and the use of proceeds, discloses any material facts about the issuer that have not been generally disclosed, and includes a statement that there is no material fact or material change about the issuer that has not been generally disclosed;
  • in British Columbia, Saskatchewan, Manitoba or New Brunswick the investor must be provided with a contractual right of action for rescission or damages in the event of a misrepresentation in the issuer’s public disclosure record, regardless of whether the investor relied on that misrepresentation (investors in Alberta already have a statutory right of action under Alberta securities laws);
  • in the subscription agreement, the issuer must represent that its public disclosure record does contain any misrepresentations and that there are no material facts or changes related to the issuer that have not been generally disclosed; and
  • the investor must obtain suitability advice from a registered dealer.

The adoption of the Exemption falls in line with a recent trend demonstrated by Canadian regulators to increase the investor pool available to issuers and decrease the costs associated with accessing these investors. However, it should be noted that the Exemption is available only in the Participating Jurisdictions and is not available in Ontario. Although this limits participation by investors resident in Ontario, issuers now have another option to access retail investors resident in the Participating Jurisdictions without incurring the costs associated with a prospectus offering.

The Suncor – Canadian Oil Sands Board Demonstrates that the Board’s Recommendation Truly is a Prized Asset

Earlier this week, Suncor Energy Inc. (Suncor) and Canadian Oil Sands Limited (COS) announced that they reached an agreement whereby COS agreed to support Suncor’s offer to acquire COS for $6.6 billion (including estimated debt of $2.4 billion), representing a 12% increase in the exchange ratio from the initial offer made by Suncor for COS in early October 2015.  Initially, the COS board of directors adamantly opposed the hostile bid. However, after several bid extensions over the course of a truly hostile takeover battle lasting more than 100 days, the COS board agreed to support a sweetened offer, substantially increasing the likelihood that Suncor’s bid will be successful.

Competition by other Bidders and Target Board Support Influence Success of a Bid

Drawing on findings from our 2015 Hostile Take-Over Bid Study (Fasken Study), our previous blog post suggested that Suncor might have an uphill battle in the absence of the COS board’s support.  In that regard, we have found that the Suncor bid for COS is progressing in a manner consistent with many of the findings in the Fasken Study. On the one hand, the data in the Fasken Study revealed that a first-mover bidder was successful in 2/3 of one-on-one battles where no competition emerged.  As no competing offer emerged to challenge Suncor’s bid, this suggested that the odds were significantly in favour of Suncor to begin with; however, securing board support would appear to be even more significant.  Over the study period, bidders who ultimately won the support of the target’s board were successful in all but one case, or 98% of the time; bidders succeeded only 22% of the time without the target board’s support. And results are even more dismal for bidders offering share consideration alone (as was the case with Suncor’s bid): if the bidder failed to secure the support of the target’s board, the odds of such a bid succeeding dropped to 5%.

Over the decade covered by the Fasken Study, there were a total of 34 hostile bids in which the bidder offered only share consideration.  In 20 of those bids the support of the target’s board was not obtained and the hostile bidder acquired control of the target on only one occasion.  In the 14 bids where the support of the target’s board was obtained, control of the target was acquired by the hostile bidder in every case.


Based on the results of the Fasken Study, one might have concluded that when no competing offers for COS emerged, Suncor was at an advantage; however, given that the Suncor offer was for share consideration, obtaining the support of the COS board was arguably of critical importance.  Without the support of the COS board, Suncor was unable to generate enough support from COS shareholders to satisfy its minimum tender condition of two-thirds of the COS shares (it was reported that less than 50% of the COS shares were tendered to the bid).  Now that the Suncor bid has the support of the COS board, we anticipate that the bid will be successful.

Given the current economic environment and increased volatility in commodity prices, we may see an increase in hostile takeover bids and M&A activity.  However, companies subject to a hostile takeover bid should recognize the leverage afforded to them by the board’s recommendation while bidders would be unwise to dismiss it.