The Canadian Securities Administrators ("CSA") recently published for comment a revised National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers ("NI 51-103"). The revisions to NI 51-103 are said to take into account comments received in response to earlier proposals. NI 51-103 is intended to replace, for venture issuers only, the disclosure and governance requirements currently found in various other securities law instruments.

purpose of the proposed instrument

Consistent with the original proposals, the revised proposals are designed to: a) improve access to key information and facilitate informed decision-making through improved disclosure requirements; b) allow management more time to focus on the growth of their company by streamlining and reducing disclosure requirements; c) enhance investor confidence in the venture market by introducing substantive governance standards; and d) enhance the ability of securities regulators to focus on the unique challenges associated with the venture market when creating new rules.

key changes to the proposed materials

A few of the proposed changes to NI 51-103 are as follows.

eliminating three and nine month interim financial reports

Originally, the CSA proposed to eliminate three and nine month interim financial reports, and instead only require a mid-year interim report. Commenters supporting the original proposal noted that venture issuers would benefit from cost-savings and time and that investors would be able access sufficient alternative information from other sources. Commenters opposed to the original proposal felt that the time period between the mid-year and annual financial reports would be too long, and may affect the perception of venture issuers, their governance, liquidity and comparability to more senior issuers.

The CSA now proposes that venture issuers be required to file interim financial reports for each of the 3, 6 and 9 month interim periods. The MD&A accompanying the interim financial statements will consist of "quarterly highlights" which will include a short discussion of the venture issuer's operations and liquidity.

major acquisitions

In the original proposals, the CSA proposed to modify the test for determining when an acquisition is consider "significant", and to eliminate the requirement for pro forma financial statements in connection with a major acquisition.

The revised instrument modifies the test for determining a major acquisition so that both the venture issuer's market capitalization and the estimated value of the business to be acquired are determined prior to the announcement of the transaction. Additionally, pro forma financial statements will not be required for major acquisitions.

executive compensation disclosure

The CSA originally proposed to have executive compensation disclosure in both the annual report and the information circular. However, the majority of commenters supported having executive compensation disclosure only in the information circular, arguing that investors are aware of where this information is located. In response to the comments received, the CSA is now proposing to require executive compensation disclosure only in the information circular. Furthermore, the CSA now proposes to require executive compensation disclosure for only the top three, rather than top five, named executive officers.

governance responsibilities

To increase investor confidence in the venture market, the CSA has introduced substantive corporate governance requirements and enhanced guidance for related party transactions, conflicts of interest and insider trading.

audit committees

The original proposals required a venture issuer audit committee to be composed of at least three directors, a majority of whom are not executive officers or employees. The CSA now proposes to enhance the requirements for impartiality by including "control persons" to the list of individuals not permitted to make up the majority.