This bulletin will highlight and discuss the recent developments affecting Canadian reporting issuers and their use of websites and social media. There are emerging concerns from Canadian securities regulators surrounding the use of social media and the proper disclosure of material information by reporting issuers.
New website requirements for Toronto Stock Exchange listed issuers
The Toronto Stock Exchange (the “TSX”) recently announced changes to the TSX Company Manual to address reporting issuers’ increasing use of the internet to engage with prospective investors and security-holders. Effective April 1, 2018, section 473 of the TSX Company Manual will require TSX-listed issuers to post current copies of their corporate policy and governance documents on a publicly accessible website. The documents must be posted to a webpage that is easily identifiable and publicly accessible from the home page or the investor relations page. Listed issuers that share a website must each have a separate and dedicated webpage for the purposes of complying with these new requirements.
TSX-listed issuers must post their constating documents, including the articles of incorporation, amalgamation, continuance (and any other documents that establish the issuer) and the by-laws. Additionally, if listed issuers have adopted any of the following policies, they must also be posted on the applicable website: majority voting policy, advance notice policy, position descriptions for the board chair and the lead director, board mandate, and board committee charters. As a result of these amendments, reporting issuers will no longer be required to describe their majority voting policy in their management information circulars.
The new requirements apply to all TSX-listed issuers except three categories that are exempted:
- Eligible Interlisted Issuers: TSX-listed issuers, who are also listed on another TSX-recognized stock exchange and who had less than 25% of the overall trading volume of their listed securities occurring on all Canadian marketplaces in the preceding 12 months.
- Eligible International Interlisted Issuers: Eligible Interlisted Issuers organized in a TSX-recognized jurisdiction (for example, issuers that are organized in England, Australia, the U.S., or in any other jurisdiction the TSX from time to time deems to be acceptable).
- Non-Corporate Issuers: Issuers of certain exchange-traded products, closed-end funds and structured products traded on the TSX.
These new requirements do not apply to reporting issuers listed on the TSX Venture Exchange.
Although under applicable Canadian securities laws, reporting issuers are required to file certain documents on the System for Electronic Document Analysis and Retrieval (“SEDAR”), not all corporate governance documents are required to be filed on SEDAR and those that are filed on SEDAR can be difficult to locate. The TSX believes that any modest regulatory burden imposed by its new requirements will be outweighed by the benefit of improving accessibility and centralizing the location of a TSX-listed issuer’s corporate governance information for investors and securityholders.
Canadian Securities Administrator’s staff notice regarding social media
On March 9, 2017, the Canadian Securities Administrators published Staff Notice 51-348 in an effort to address the expanding social media practices of reporting issuers. In particular, the CSA was concerned with the use of various online forums - including blogs, investor presentations and chat rooms - to provide corporate disclosure to investors. The CSA acknowledged that despite these forums not being directly intended to communicate material information to investors, this kind of information can form the basis for investment decisions and it is therefore essential that the social media practices of reporting issuers adhere to the disclosure requirements contained in applicable Canadian securities laws.
The CSA reviewed the disclosure posted on social media by 111 reporting issuers to assess whether such disclosure was compliant with the requirements of National Policy 51-201 Disclosure Standards and National Instrument 51-102 Continuous Disclosure Requirements (“NI 51-102”). In addition to the disclosure posted on the reporting issuers’ own websites, the CSA reviewed other popular online platforms such as Facebook, Twitter, YouTube, LinkedIn, Instagram and GooglePlus.
The results identified three areas in which reporting issuers are expected to improve their disclosure practices:
- Selective or early disclosure: Some investors receive material information through social media that other investors do not receive because it is not generally disclosed through traditional disclosure methods.
- Misleading and unbalanced social media disclosure: This includes insufficient information or information that is inconsistent with information already disclosed by issuers on SEDAR.
- Insufficient social media governance policies: Issuers should have appropriate policies to support their social media activities.
Without naming specific reporting issuers, the CSA noted that in some instances, they discovered deficient disclosure that could have caused significant stock-price movements and investor harm. Issuers were warned that the CSA will continue to monitor this area and that any issuers found not to be in compliance with applicable securities law requirements will be required to take corrective action.
Ontario Securities Commission annual corporate finance branch report
The Ontario Securities Commission, in its Annual Corporate Finance Branch Report dated September 21, 2017, also addressed social media considerations in relation to continuous disclosure obligations of reporting issuers. The OSC recognized the recent business trend among reporting issuers of engaging with stakeholders by posting business information to their websites, blogs, and other social media platforms such as Facebook and Twitter. The OSC highlighted the need for reporting issuers to improve the quality of their social media disclosure to comply with NI 51-102 and to prevent unbalanced, misleading and selective disclosure, or disclosure that is inconsistent with disclosure contained in documents filed on SEDAR. Reporting issuers were advised to ensure that all material information posted on social media is simultaneously filed on SEDAR. The OSC also advised reporting issuers to adopt a social media governance policy that addresses both the importance of traditional disclosure requirements in accordance with securities laws, as well as the regulatory considerations surrounding disclosure provided on social media.
Ensuring compliance with securities laws
The recent commentary of Canadian securities regulators, and the pending changes adopted by the TSX, highlight an emerging concern that social media is causing early, selective or inconsistent disclosure of material information by reporting issuers. To ensure compliance with securities laws, TSX-listed issuers should prepare their websites to comply with the new TSX rules. In addition, reporting issuers should ensure that they use social media as a means to supplement, rather than to replace, traditional disclosure methods. For example, reporting issuers should continue to ensure that information is disseminated to the public via news releases, in accordance with securities laws, before it is posted to social media. Where information is posted on social media, reporting issuers should be cautious to omit information that could lead to misleading statements.