Structured (or linked) notes are specified derivatives whose prices are determined by reference to the value of an underlying interest unrelated to the issuer of the structured note. The CSA regulates such notes through their review of prospectus supplements, and yesterday's notice provides issuers with a guide in respect of CSA staff's expectations while conducting the review process.
Specifically, the notice, which updates and supplements earlier guidance on the topic, sets out:the disclosure that issuers should consider when preparing prospectus supplements for structured notes, including in respect of the issuer's estimate of the note's fair value and valuation model, hypothetical or back-tested performance data (which CSA staff have generally requested be removed), and disclaimers of liability for third-party information (which CSA staff believe do not reflect liability for prospectus misrepresentation under securities law); disclosure that issuers should consider providing on their websites regarding their structured notes on an ongoing basis, including in respect of the composition of the underlying portfolio to which the note is linked and the initial price or level of the underlying interest; and the filing process to pre-clear novel supplements and for subsequent offerings of pre-cleared products as well as further guidance on undertakings to pre-clear a draft prospectus supplement for notes linked to equity securities that are not listed on a Canadian stock exchange.
CSA staff intend to continue to monitor filings to consider whether more formal regulatory action is required. For more information, see CSA Staff Notice 44-305.