Canadian regulators propose reduced disclosure requirements for smaller issuers

June 6, 2014

By Daniel Seleanu, Compliance Complete

TORONTO, June 6, 2014 (Thomson Reuters Accelus) – Smaller public companies in Canada may soon benefit from relaxed disclosure requirements. The Canadian Securities Administrators (CSA), the country’s securities standard-setter, recently proposed several amendments that address continuous disclosures, prospectus disclosures, and certain governance obligations. 

In particular, the proposed amendments for the smaller companies, or “venture issuers” would:

    • Allow the requirement for management discussion and analysis (MD&A) in interim financial periods to be satisfied by filing a streamlined “quarterly highlights” document. Applicable to venture issuers without significant revenue in the most recently completed financial year, the quarterly highlights would provide a short, focused discussion that gives a balanced and accurate picture of the venture issuer’s operations and liquidity, including material accounting changes.


    • Implement a new, tailored form of executive compensation disclosure, including new filing deadlines. The proposal would reduce the number of individuals for whom disclosure is required from a maximum of five to a maximum of three (i.e. the chief executive officer (CEO), chief financial officer (CFO), and “one additional highest-paid executive officer”). It would also eliminate the requirement for venture issuers to disclose the grant date fair value of stock options and other share-based awards in the summary compensation table. Instead, venture issuers would disclose detailed information about stock options and other equity-based awards issued, held, and exercised. Additionally, two years of disclosure would be required instead of three.


    • Reduce the instances in which a business acquisition report (BARs) must be filed by increasing the acquisition threshold trigger from 40 per cent to 100 per cent. Additionally, BARs filed by venture issuers would no longer have to include pro forma financial statements.


    • Create a new requirement for audit committees to have at least three members, the majority of whom could not be executive officers, employees, or control persons of the issuer.


    • Amend the prospectus disclosure requirements to reduce from three to two the number of years of audited financial statements required in an initial public offering (IPO) prospectus for issuers whose IPO would make them venture issuers. The proposal would also reduce the period required for describing a venture issuer’s business and history from three years to two.


    • Conform the existing prospectus disclosure rules to the corresponding continuous disclosure requirements described above.

“These proposed amendments are designed to streamline disclosure requirements so that venture issuers can focus more on the growth of their businesses,” CSA Chair Bill Rice, said in a statement. “They will also focus disclosure on information that reflects the needs and expectations of investors and eliminate disclosure that may be less valuable to investors.”

In July 2011 and September 2012, the CSA had proposed a stand-alone disclosure and governance regime for venture issuers, but negative feedback led the CSA to withdraw the proposals in 2013. “Feedback from the venture issuer community indicated that the benefits from streamlining and tailoring were outweighed by the burden of the transition to a new regime, particularly at a time when many venture issuers were facing significant challenges,” the CSA explained.

If implemented, the amendments would result in one-time costs for all venture issuers as they familiarize themselves with the new requirements, the Ontario Securities Commission (OSC) said in its localised request for comment (PDF). In the long run, however, the OSC said that it expects the time and monetary costs imposed on venture issuers to decrease as they become more efficient in carrying out their disclosure and governance activities.

“For venture issuer investors, the key benefits of the proposed amendments are more concise, salient, and easier to understand information,” the OSC said. “In its entirety the OSC anticipates [that] the costs of the proposed amendments would be proportionate to their benefits.”

Comments are open until August 20, 2014.

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

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