The Canadian Securities Administrators have published for comment significant proposed changes to their rules and policies governing the pre‐marketing and marketing of prospectus offerings, other than mutual fund offerings. The changes, if enacted, would loosen some of the current restrictions that limit the marketing activities of investment dealers involved in public offerings and clarify the positions of the regulators in certain areas.
A summary of the main proposals is set out below. Reference should be made to this link for further details:
“Testing of the Waters” Pre‐marketing Exemption for IPO Issuers
Investment dealers would be allowed to communicate with “permitted institutional investors” to determine interest in a potential initial public offering, subject to certain conditions related to confidentiality and record keeping. The definition of a “permitted institutional investor” would include a number of the types of institutional investors that are “accredited investors” for purposes of prospectus exemptions under Canadian securities laws. The new accommodation would not be available for issuers that are already public companies in a foreign jurisdiction.
Bought Deal Exemption Changes and Clarifications
An issuer and underwriter would be permitted to amend their bought deal agreement to increase the size of the offering under certain conditions. The increase would be limited to a specified percentage of the original size of the offering, but that percentage has not been determined by the regulators yet. The preliminary prospectus would still have to be filed and receipted within four business days of the original agreement, and the enlarged offering would have to be at the same price as the original offering. It is also proposed that additional underwriters would be allowed to join the bought deal syndicate under specified conditions and that the pre‐marketing exemption for bought deals would not be available if the bought deal agreement contained a market‐out clause.
Additional Guidance on When a Distribution Commences
It is proposed that additional guidance will be provided as to when the securities regulators consider a distribution of securities to have commenced, triggering the marketing restrictions. In particular, the current policy’s concept of discussions of “sufficient specificity” between an underwriter and an issuer would be expanded upon with examples.
Term Sheet for Bought Deals Before Filing of Preliminary Prospectus
Investment dealers would be permitted to provide a term sheet to permitted institutional investors between the time of the announcement of a bought deal and time of the filing of the preliminary prospectus if the term sheet contained only information that was in the bought deal press release or the issuer’s continuous disclosure record, and certain other conditions were met. The term sheet would have to be filed with the securities regulators before its use but would not be made public on SEDAR until the preliminary prospectus was receipted.
Term Sheet During Waiting Period
Investment dealers would be permitted to provide a term sheet to prospective purchasers during the period between the issuance of the preliminary and final prospectus receipts (the “waiting period”) to provide for a greater range of marketing communications. This term sheet would be required to contain only information that was also in the preliminary prospectus, and there would be additional conditions to its use. The term sheet would have to be filed on SEDAR before its use.
Investment dealers would continue to be permitted to provide traditional green sheets to their registered representatives during the waiting period, but green sheets distributed to the public would be considered “term sheets” and would be subject to the prescribed conditions to the use of term sheets.
Specific requirements would be prescribed for road shows held during the waiting period. All information in a road show would have to be contained in the preliminary prospectus, except for comparables (information that compares the issuer to other issuers) in the case of a road show confined to permitted institutional investors. Written materials distributed to prospective purchasers at a road show would be subject to the same rules that would apply to term sheets, except for comparables in the case of a road show confined to permitted institutional investors. Among other things, this would mean that the materials would have to be filed on SEDAR before they were distributed.
Marketing after the Final Prospectus Receipt
Term sheets and road shows following the issuance of a receipt for the final prospectus would be subject to requirements similar to those that applied during the waiting period.
The Canadian Securities Administrators will accept comments on the proposals until February 23, 2012.