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.