Timely Disclosure

Timely Disclosure

Updates and Commentary on Current Issues in Corporate Finance, Securities and Mergers and Acquisitions

Registrants’ Disclosure of Outside Business Activities – OSC Late Fee Amnesty

Further to amendments to National Instrument 33-109 Registration Information (NI 33-109) on January 11 of this year, the Form 33-109F4 Registration of Individuals and Review of Permitted Individuals (F4) was amended and sets out that registered and permitted individuals (representatives) must disclose other business activities (OBA) relating to all officer, director or equivalent positions held, and all positions of influence, whether or not one receives compensation and whether or not the position is business related.

Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations (31-103CP) was also amended on January 11 and provides further guidance on OBA disclosure.

The above amendments have clarified the CSA’s long-standing expectation on OBA disclosure. Recognizing that previously existing OBAs have not been disclosed, the OSC is providing registrants with an opportunity to “catch up” on overdue OBA filings and willing to consider a reduction in late filing fees if the OBA does not affect a representative’s suitability for registration.

In order to qualify for a reduction of late fees, a completed Form 33-109F5, updating item 10 of the F4 relating to OBAs, must be submitted via the National Registration Database by no later than March 27, 2015.

A completed Form 13-705F1 Application for Reduced Late Fee Relief – Outside Business Activities must be submitted to the OSC by March 27, 2015 in order to be considered for relief from the late fees normally imposed, i.e. $100 per business day filing is late, subject to a maximum aggregate late fee of $5,000 for all documents required to be filed or delivered by a registered firm in a calendar year.

See OSC Staff Notice 13-705 Reduced Late Fee for Certain Outside Business Activities Filings for further details on eligibility criteria and the late fee relief application process.

Mise à jour sur l’encadrement des fonds d’investissement alternatifs

Mise à jour sur l’encadrement des fonds d’investissement alternatifs

Dans le cadre des efforts menés par les Autorités canadiennes en valeurs mobilières (« ACVM ») en vue de moderniser la réglementation des produits de fonds d’investissement, celles-ci ont publié récemment une mise à jour sur les propositions relatives aux fonds alternatifs.

Les « propositions relatives aux fonds alternatifs » sont les propositions des ACVM concernant l’élaboration d’un projet d’encadrement réglementaire plus complet des fonds d’investissement faisant appel public à l’épargne qui souhaitent investir dans des actifs ou utiliser des stratégies de placement non autorisées par le Règlement 81-102 sur les fonds d’investissement. Les propositions relatives aux fonds alternatifs seraient adoptées en même temps que certaines restrictions en matière de placement applicable aux fonds d’investissement à capital fixe en ce qui a trait aux placements dans des marchandises physiques, aux ventes à découvert, à l’utilisation de dérivés et aux emprunts de fonds (les « restrictions interreliées en matière de placement »).

Les ACVM avaient sollicité des commentaires sur les propositions relatives aux fonds alternatifs en mars 2013. Dans cette mise à jour, les ACVM discutent des thèmes clés découlant des commentaires reçus dont certains sont repris ci-dessous.

Les attributs d’un fonds d’investissement alternatif

Plusieurs intervenants ont souhaité plus d’information sur les critères qui pourraient être utilisés pour distinguer un fond alternatif des autres fonds d’investissement offerts au public. Certains intervenants ont exprimé leur avis que l’octroi de dispenses aux fonds d’investissement qui souhaitent utiliser des stratégies alternatives ou investir dans des catégories d’actifs alternatifs de façon limitée devrait être envisagé plutôt que d’obliger des fonds à se conformer aux propositions relatives aux fonds alternatifs.

Convention de désignation

Les intervenants semblaient généralement opposés à une convention de désignation. Ils craignent qu’obliger l’utilisation de l’expression « fond alternatif » puisse donner inutilement l’impression que ces fonds sont plus risqués ou plus volatiles que les autres. Ils semblent également être d’avis que désigner un fond comme « alternatif » n’est pas suffisant pour que les investisseurs individuels comprennent le niveau de risque et de complexité de ces fonds.

Restrictions en matière de placement

Plusieurs intervenants ont suggéré que les fonds alternatifs ne devraient être assujettis à aucune restriction ou à aucun plafond en matière de placement (effet de levier, vente à découvert, etc.). Ils croient que de telles restrictions freineront l’émergence de nouveaux types de fonds alternatifs ou de nouvelles stratégies de placement alternatives.

Prochaines étapes

Les ACVM continueront leur analyse des commentaires reçus sur les propositions relatives aux fonds alternatifs et les restrictions interreliées en matière de placement et continueront également de consulter directement les intervenants. Les consultations devraient être achevées d’ici la mmi-2015, après quoi les ACVM entendent publier pour consultation des propositions de modification réglementaire afin de mettre en œuvre les propositions relatives aux fonds alternatifs avant la fin de l’année.

Update on an Alternative Funds Framework for Investment Funds

Update on an Alternative Funds Framework for Investment Funds

As part of their ongoing efforts to modernize investment fund product regulation, the Canadian Securities Administrators (CSA) recently published an update on the status of the creation of an Alternative Funds Proposal.

The Alternative Funds Proposal is the CSA’s proposal calling for a more comprehensive regulatory framework for publicly offered investment funds that wish to invest in assets or use investment strategies not permitted under National Instrument 81-102 Investment Funds. The Alternative Funds Proposal would be adopted in conjunction with certain investment restrictions for non-redeemable investment funds in respect of physical commodities, short selling, the use of derivatives and borrowing cash (the Interrelated Investment Restrictions).

The CSA had previously sought comments on the Alternative Funds Proposal in March 2013. In this update, the CSA discusses the key themes that emerged from their request for comments, some of which are summarised below.

The Attributes of an Alternative Investment Fund

Many commenters sought more information about the criteria which would be used to differentiate alternative funds from other publicly offered investment funds. Some commenters expressed the view that granting exemptive relief to investment funds that wish to use alternative strategies or invest in alternative asset classes on a limited basis should be considered instead of requiring such funds to comply with an alternative fund framework.

Naming Convention

Commenters seemed generally opposed to a naming convention. They worry that requiring the use of the expression “alternative fund” may result in such funds being unnecessarily labeled as high risk or more volatile than other investments funds. They also seemed to be of the view that labeling funds as “alternative” would not be sufficient for retail investors to understand the level of risk and complexity of such funds.

Investment Restrictions

Many commenters suggested that alternative investments funds should not be subject to investment restrictions or limits (leverage, short selling, etc.). They believe such restrictions would impede the development of new types of alternative investment funds or alternative investment strategies.

Next Steps

The CSA will continue to consider the feedback provided on the Alternative Funds Proposal and the Interrelated Investment Restrictions and will also continue to speak directly to stakeholders. Consultations are expected to be completed by mid-2015, after which the CSA expect to publish for comment proposed rule amendments aimed at implementing the Alternative Funds Proposal by the end of the year.

Equity Crowdfunding Rules Expected in Summer 2015

In a release issued today, the Ontario Securities Commission advised that the participating jurisdictions of the Canadian Securities Administrators are still reviewing the comments received on a proposed crowdfunding regime and an offering memorandum prospectus exemption.   In its release, the OSC stated that its goal is to publish proposed rules regarding these matters either in final form, or if warranted, for a second comment period, in summer 2015.

To enable early stage businesses to access capital, the OSC did publish today amendments to current prospectus exemptions to introduce a family, friends and business associates prospectus exemption in Ontario which will allow businesses to raise capital from investors who are the principals of the business or within the personal networks of the principals.  Subject to Ministerial approval, it is expected to come into force on May 5, 2015.

OSC Publishes Report on its Review of REIT Distributions Disclosure

After reviewing the continuous disclosure records of 30 Ontario-based real estate investment trusts (REITs), the Ontario Securities Commission (OSC) staff, in OSC Staff Notice 51-724 Report on Staff’s Review of REIT Distributions Disclosure issued January 26, 2015, has provided additional guidance on its expectations for disclosure by REITs regarding the source of distributions paid to equityholders, and the sustainability of those distributions. This report reiterates and further explains guidance provided in National Policy 41-201 Income Trusts and Other Indirect Offerings (NP 41-201), which sets out certain requirements applicable to REITs’ continuous disclosure and offering documents.

In its report, the OSC staff noted the expectation of investors that REITs, as an investment vehicle, provide a predictable cash flow stream, and therefore that it is critical that REITs provide transparent disclosure that enables investors to evaluate the source of funding for the distributions paid by the REIT and their sustainability. Although the OSC characterized the majority of the disclosure they reviewed as fulsome, they did identify the following four areas of concern where disclosure should be improved:

  • the content of disclosure where distributions in excess of cash flows generated from operations are paid,
  • consistency of disclosure about excess distributions,
  • timely disclosure where a reduction or termination of distributions occurs, and
  • presentation of metrics common to the real estate industry such as adjusted funds from operations (AFFO).

All four concerns were heightened where the distributions paid by REITs exceeded the cash flows generated by the REIT’s underlying real estate portfolios.

The report provides examples of disclosure the OSC staff regards as inadequate, as well as examples of how that disclosure could be improved.

The report also notes that the OSC staff will continue to assess these disclosure items in their continuous disclosure and prospectus review programs and that REITs who have not complied with disclosure expectations will be expected to take corrective action. We recommend, therefore, that REITs review their continuous disclosure filings for compliance with the items highlighted in the report, particularly in advance of any proposed prospectus offerings.

TSX Proposes Listing Requirements for Investment Funds

On January 15, 2015, the Toronto Stock Exchange (TSX) published for comment proposed amendments to the TSX Company Manual which would introduce listing requirements for non-corporate entities, such as exchange-traded products, closed-end funds and structured products, as those terms are defined in the proposed amendments.

The proposed amendments address the following, among other matters:

  • minimum and continued listing requirements
  • distribution requirements
  • management
  • net asset value calculation and website display
  • additional listings (including the requirement for non-dilutive pricing in specified instances)
  • management fees paid in securities
  • securityholder approval requirements for changes to declarations of trust and other constating documents.

Comments on the proposed amendments are due on March 16, 2015.

IIROC Publishes Guidance to Underwriters in respect of Due Diligence for Public Offerings


On December 18, 2014, the Investment Industry Regulatory Organization of Canada (IIROC) published its final guidance note outlining common due diligence practices and suggestions for IIROC dealer members (Dealer Members) in underwritten public offerings of securities.  The guidance note follows IIROC’s March 6, 2014 proposed guidance and a three month public comment period.

The guidance note urges Dealer Members to take an approach to due diligence that goes beyond the mere avoidance of liability and mitigation of risk to the underwriter as Dealer Members play a role in protecting investors, fostering fair and efficient capital markets and creating and maintaining confidence in the capital markets.

The guidance note was prepared specifically to address Dealer Members involved in public offerings of securities. Although the March 6, 2014 proposed guidance indicated that some aspects of the guidance may be helpful to Dealer Members in the context of private placements, such reference to private placements was removed in the final guidance note.

Nine Principles of Underwriting Due Diligence

The guidance note is designed to promote consistency and enhanced underwriting due diligence standards among Dealer Members.  It sets out nine principles which underwriters should consider in the context of their due diligence of the issuer. These are: Continue Reading

2015 ISS and Glass Lewis Updates

Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their Canadian proxy voting recommendation guidelines for the 2015 proxy season. The items updated include those pertaining to the definition of independence, advance notice requirements, by-law amendments, private placements, treatment of majority voting policies, shareholder rights plans and advance notice policies.

The following summary outlines the significant changes made by ISS (ISS Updates) and Glass Lewis to their respective Canadian proxy advisory guidelines.


Definition of Independence. The current guidelines recommend that votes be withheld for any “insider” or “affiliated outside director” where the board does not have a majority of independent directors or the board lacks a separate compensation or nominating committee.  The ISS Updates provide that an assessment as to independence will be made on a case-by-case basis.  ISS will deem a former CEO to be independent for the purposes of serving on the board or any key committee, including the audit committee, after a five year cooling off period unless certain factors indicate otherwise.  Specifically, the ISS Updates include a provision that deems any director nominee who has any material relationship with the issuer or with any one or more members of management of the issuer not to be independent.  A material relationship is defined as a relationship (financial, personal or otherwise) that a reasonable person might conclude could potentially influence one’s objectivity in the boardroom in a manner that would have a meaningful impact on an individual’s ability to satisfy requisite fiduciary standards on behalf of shareholders.  ISS will also recommend a withhold vote from any director who has served as the CEO of the issuer within the past five years and is a member of the audit or compensation committee.

Advance Notice Policies. With respect to Advance Notice Policies, ISS will generally recommend that investors withhold votes from individual directors, committee members, or the entire board as appropriate in situations where an Advance Notice Policy has been adopted by the board but has not been included on the voting agenda at the next shareholders’ meeting.  The rationale behind the recommendation is that certain problematic provisions included within these bylaws/policies could potentially interfere with a shareholder’s ability to nominate directors.  ISS is of the view that the ability for shareholders to put forward potential nominees is a fundamental right and should not be amended by management or the board without shareholders’ approval.  ISS considers the following features problematic:

  • for a notice of annual meeting given not less than 50 days prior to the meeting date, the notification timeframe within the advance notice requirement should allow shareholders the ability to provide notice of director nominations at any time not less than 30 days prior to the meeting.  The notification timeframe should not be subject to any maximum notice period for annual meetings.  If notice of annual meeting is given less than 50 days prior to the meeting date, a provision to require shareholder notice by close of business on the 10th day following first public announcement of the annual meeting is supportable.  In the case of a special meeting, a requirement that a nominating shareholder must provide notice by close of business on the 15th day following first public announcement of the special shareholders’ meeting is also acceptable;
  • the board’s inability to waive all sections of the advance notice policy, in its sole discretion; Continue Reading

A New National Rights Offering Exemption

On November 27, 2014, the Canadian Securities Administrators (CSA) published for comment proposed amendments to various National Instruments which, if adopted, would overhaul how rights offerings under the rights offering prospectus exemption are conducted. The amendments would also have minor revisions to the requirements of rights offerings conducted by way of prospectus.  The CSA indicate that the amendments are meant to make the rights offering exemption more accessible by streamlining the process.

A rights offering is a financing where the issuer grants to its current securityholders one right per security held. The right or a certain number of rights would then be exercisable prior to the expiry date to purchase an additional security of the issuer at a certain subscription price. The issuer can issue these rights under a prospectus or by using a prospectus exemption.

The proposed amendments include amendments to National Instrument 41-101 General Prospectus Requirements (NI 41-101), National Instrument 44-101 Short Form Prospectus Distributions, National Instrument 45-102 Resale Restrictions, Companion Policy 45-106CP to NI 45-106 and Companion Policy 41-101CP to National Instrument 44-101.

Summary of Amendments

Currently, National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) provides a specific prospectus exemption (Current Exemption) for rights offerings which comply with National Instrument 45-101 Rights Offerings (NI 45-101). However, the CSA note that the Current Exemption is not commonly utilized because rights offerings complying with the Current Exemption are time consuming and costly. Under the proposed amendments, NI 45-101 would be repealed and the Current Exemption would be replaced by a new exemption in NI 45-106 (New Exemption) that would substantially change the requirements for a prospectus exempt rights offering.

Below is a summary of the major changes under the New Exemption:

  • Availability: Only reporting issuers, other than certain investment funds, would be able to utilize the New Exemption. In addition, the Current Exemption would be repealed, meaning there would no longer be an ability for non-reporting issuers to undertake a rights offering under a specific rights offering prospectus exemption. Continue Reading

Canadian Securities Regulators Publish Revised Notice for Enhanced Early Warning System

On March 14, 2013, the Canadian Securities Administrators (CSA) initially published for comment proposed rules relating to the early warning reporting system (2013 Notice).  The 2013 Notice identified the CSA’s concerns regarding the transparency of disclosure of significant holdings of reporting issuers’ securities under the existing early warning reporting system.  In particular, the 2013 Notice focused on whether the current reporting trigger of 10% of any class of voting or equity securities continues to be appropriate and on the adequacy of disclosure in early warning reports themselves. On October 10, 2014, the CSA published a revised notice that substantially amends the approaches suggested in the 2013 Notice.  Most importantly, the CSA have now concluded not to proceed with their earlier proposal to reduce the current reporting threshold from 10% to 5% and not to include “equity equivalent derivatives” for purposes of determining the threshold for early warning reporting. This latest notice states that the CSA intend to proceed with final amendments to the early warning system (Final Amendments) which will:

  • require disclosure of 2% decreases in ownership;
  • require disclosure when a shareholder’s ownership interest falls below the reporting threshold (i.e., below 10%);
  • make the alternative monthly reporting regime unavailable to eligible institutional investors in certain circumstances where the investor is engaged in proxy solicitation activities in respect of the issuer;
  • restrict the circumstances in which lenders and borrowers of securities are exempted from compliance with the early warning requirements in connection to specific securities lending arrangements;
  • provide guidance clarifying how the early warning system applies to certain derivative instruments;
  • enhance and improve the disclosure requirements in the form of early warning report, particularly in respect of the investor’s intentions with respect to its position; and
  • clarify the timeframes within which reports must be filed and news releases issued.

The Final Amendments are expected to be published in the first quarter of 2015.  While the Final Amendments are not as extensive an overhaul as the draft amendments proposed in the 2013 Notice, the CSA believe that the Final Amendments will enhance the quality and integrity of the Canadian early warning reporting regime.