FROM THE REGULATORS
OSC publishes 2015-2016 Draft Statement of Priorities for comment
On April 2, 2015 the Ontario Securities Commission (“OSC”) published its annual draft Statement of Priorities (the “SoP”) setting out priority areas where the OSC intends to focus key resources and action for the coming fiscal year.
The SoP reiterates the OSC’s mandate of providing protection to investors from unfair, improper or fraudulent practices and fostering fair and efficient capital markets, as well as increasing confidence in capital markets.
Notably, the OSC intends to prioritize improved regulation of derivatives-related matters in 2015-2016. Progress in this area is to include the publishing of a national instrument regulating the registration of derivatives dealers. Other important goals for the OSC are to:
- Introduce changes to the capital-raising regime in Ontario, including rules with respect to an offering memorandum prospectus exemption, a crowd-funding prospectus exemption, a modernized prospectus exempt rights offering framework and new reporting requirements for prospectus exempt financings,
- Develop a regulatory plan in conjunction with IIROC to address certain issues identified in its fixed income review, including requirements to increase post trade transparency,
- Publish results from a disclosure review in connection with the representation of women on boards and continue efforts to promote transparency in this area, and
- Monitor ongoing developments with respect to say-on-pay in Canada to determine if it is necessary to incorporate say-on-pay in Ontario securities regulation.
The final statement of priorities is now available on the OSC’s website.
CSA Provides New Guidance on Investor Presentations on Mining Issuers’ Websites
On April 9, 2015, the Canadian Securities Administrators (“CSA”) released Staff Notice 43-309: Review of Website Investor Presentations by Mining Issuers following a review of 130 investor presentations between December 2013 and October 2014 from mining issuers at the pre-production stage. The presentations were evaluated for compliance with National Instrument 43-101 Standards of Disclosure for Mineral Projects and forward looking information requirements in Part 4A of National Instrument 51-102 Continuous Disclosure Obligations.
The CSA found that there is room for mining issuers to improve their compliance with disclosure requirements and points to areas of focus for issuers preparing investor presentations. The notice emphasizes that investor presentations approved by a Qualified Professional (“QP”) are more likely to comply with disclosure requirements and that issuers must include the name of the QP and their relationship to the issuer on all documents containing scientific or technical disclosure, including websites and investor relation materials. Issuers must ensure that terms and statements are not overly promotional or misleading and that disclosure does not imply that the project is at a more advanced stage of development than the technical report indicates. The CSA expects mining issuers to use this notice as a guide for strengthening their compliance with securities legislation and improving their disclosure to investors.
CSA Provides Notice of Amendments to NI 51-102 Continuous Disclosure Obligations, NI 41-101 General Prospectus Requirements and NI 52-110 Audit Committees
On April 9, 2015 the CSA provided notice of amendments to certain rules applicable to venture issuers (the "Amendments"), the main purpose of which are to tailor and streamline venture issuer regulation.
The CSA suggested that venture issuers may be in a better position to understand the needs of their investors and therefore all venture issuers should have the option of providing either quarterly highlights disclosure or full interim MD&A. The Amendments also propose a filing deadline of 180 days after the financial year-end for executive compensation disclosure for venture issuers. This deadline will apply in respect of financial years beginning on or after July 1, 2015.
The Amendments will reduce the instances in which venture issuers will have to file business acquisition reports by increasing the significance thresholds from 40% to 100%, and will also apply for both prospectuses used to finance proposed acquisitions and for information circulars related to proposed acquisitions.
The Amendments introduce exceptions to the requirement that venture issuer’s audit committees consist of at least three members, the majority of whom cannot be executive officers, employers or control persons of the issuer. These exceptions include events outside of the control of the members and for death, disability or resignation of a member (see subsections 6.1.1(4) and 6.1.1(5) of National Instrument 52-110 Audit Committees). The audit composition requirements will apply in respect of financial years beginning on or after January 1, 2016.
This Amendment will apply in respect of financial years beginning on or after July 1, 2015.
The Amendments received ministerial approval on June 4, 2015 and came into force on June 30, 2015.
Yukon Joins Cooperative Capital Markets Regulatory System and Other Important Developments
On April 16, 2015 the Ministers responsible for capital markets regulation in Ontario, British Columbia, Saskatchewan, New Brunswick, and Prince Edward Island, and the Minister of Finance of Canada (together, the “Council of Ministers”), announced further steps toward the implementation of the Cooperative Capital Markets Regulatory System (“CCMR”).
Firstly, the Council of Ministers welcomed Yukon into the CCMR, marking the first participation of a territory to date. Secondly, the Council of Ministers announced the members of the nominating committee that will recommend candidates for the initial board of directors to the Capital Markets Regulatory Authority. The Council of Ministers will appoint the board of directors based on recommendations put forth by this nominating committee.
The Council of Ministers will meet this summer in Vancouver to review progress on implementing the CCMR, and continue to renew their invitation to governments of other provinces and territories to join the system and facilitate more efficient Canadian capital markets. Participating jurisdictions also intend to release updated draft federal, provincial and territorial capital markets legislation and draft initial regulations in summer of 2015.
CSA Seeks Comments on Further Expansion of Passport System
On April 16, 2015 the CSA published proposals (the “Proposals”) to further expand the existing passport system to two new areas: applications to cease to be a reporting issuer and cease trade orders resulting from the failure to file continuous disclosure documents.
The Proposals streamline processes in these areas and include amendments to Multilateral Instrument 11-102 Passport System (“MI 11-102”) for CSA members in passport jurisdictions, as well as the introduction of two new proposed national policies for adoption by all CSA members. While the OSC is not a passport regulator, it will continue its coordination efforts with passport systems and all passport regulators.
Under the passport system, market participants can generally gain access to markets across Canada by dealing only with their principal regulator and complying with harmonized legislative provisions. Currently, applications to cease to be a reporting issuer are filed and reviewed by each applicable securities regulator, pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions. Under the proposed amendments to MI 11-102 and the new proposed National Policy 11-206 Process for Cease to be Reporting Issuer Applications, applications to cease to be a reporting issuer would no longer need to be filed with and reviewed by each provincial or territorial regulator. Instead, an issuer will engage with its principal regulator to obtain such an order.
Furthermore, no coordinated process is currently in place for when regulators will reciprocate a cease-trade order issued as a result of a default in continuous disclosure requirements. Under the proposed amendments to MI 11-102 and the new proposed National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations under Passport, an initial cease trade order granted due to failure to adhere to continuous disclosure obligations would be coordinated across all participating passport jurisdictions.
OSC Enforcement Branch Set to Launch Mediation Initiative
On April 13, 2015 the Enforcement Branch of the OSC will officially launch a pilot Mediation Program (the “Program”) for respondents involved in enforcement proceedings before the OSC. The Program will offer respondents the option of participating in a mediation with a third party mediator independent of the OSC, pursuant to a standard mediation agreement including confidentiality terms.
Mediations will only occur with the consent of OSC staff and the participating respondents, who must be represented by counsel. Each party must provide the mediator with a brief of documents which will be discussed between the parties and mediator. Each party may withdraw from and terminate the mediation at any time, and costs of the mediation are to be divided equally between the participants.
The retainer of a mediator to facilitate settlement of a dispute must be approved by all parties. For the purposes of the Program, three individuals have been selected to serve on the roster of third-party mediators. Should OSC staff and respondents agree, a mediator can be added to the existing roster list.
The Program launched on May 1, 2015 and run until March 31, 2016. At the conclusion of the Program, there will be an assessment and a recommendation as to whether or not it should be continued. More detailed information on the Program can be found on the OSC’s website.
BCSC releases 2014 Enforcement Report
On April 21, 2015, the British Columbia Securities Commission (“BCSC”) released a report detailing its enforcement activities for 2014 (the “Enforcement Report”), the first time the BCSC has published such a report.
The 31-page Enforcement Report outlines the legal powers available to the BCSC’s enforcement division in investigating and prospecting securities-related misconduct. It also describes the BCSC’s unique enforcement process, designed to swiftly move cases from investigation to a conclusion. Highlights of the BCSC’s enforcement activities in 2014 include 22 administrative and three criminal proceedings, as well as the handling of 173 cases. The most common violations include those related to unregistered activity, illegal sales of securities, and fraud. The BCSC obtained 716 prosecution orders, 58 cease-trader orders and froze $22.36 million in assets.
Another notable section of the Enforcement Report include findings from a three-year initiative investigating people using BC dealers and accounts in offshore secrecy jurisdictions to trade illegally on inside information, manipulate the market, or engage in other forms of market misconduct. Among others, in 2014, this initiative resulted in a settlement agreement with Bank Gutenberg AG for trading with BC residents without registration.
CSA Provides New Guidance for Proxy Advisory Firms
On April 30, 2015, the CSA adopted National Policy 25-101 – Guidance for Proxy Advisory Firms (the “Policy”). The Policy sets out best practices intended to address the concerns of market participants while recognizing the important role that proxy advisory firms play in the voting process.
The Policy provides guidance and sets out recommended practices and disclosure for proxy advisory firms in an effort to promote transparency in connection with the services they provide to clients while fostering an understanding among market participants regarding proxy advisory activities. Among other things, the CSA’s guidance seeks to address (i) the identification, management and mitigation of actual or potential conflicts of interest, (ii) the transparency and accuracy of vote recommendations, (iii) the development of proxy voting guidelines, and (iv) communications matters.
Canadian Securities Regulators Adopt Changes to the Private Placement Regime and Certain Other Specific Changes Adopted by Ontario
On February 19, 2015, the CSA announced the adoption of certain amendments to National Instrument 45-106 – Prospectus and Registration Exemptions (“NI 45-106”) that affect the following private placement or prospectus exemptions:
- the accredited investor exemption,
- the minimum amount or $150,000 prospectus exemption,
- the short term debt prospectus exemption, and
- the family, friends and business associates prospectus exemption.
In addition, the Ontario Securities Commission announced the introduction of a “family, friends and business associates” prospectus exemption, bringing Ontario in line with other Canadian jurisdictions.
The amendments came into force on May 5, 2015. Our more detailed discussion of the amendments can be found by accessing the following link.
Canadian Securities Administrators Adopt Start-up Crowdfunding Exemptions
On May 14, 2015, the CSA announced that the securities regulatory authorities of British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia (the “Participating Jurisdictions”) adopted substantially harmonized registration and prospectus exemptions (the “Crowdfunding Exemptions”) allowing start-up or early-stage companies to raise capital in the Participating Jurisdictions, subject to certain conditions. The Crowdfunding Exemptions, comprised of an exemption from the prospectus requirement (the “Start-up Prospectus Exemption”) and an exemption from the dealer registration requirement (the “Start-up Registration Exemption”), are further to the comments received as part of the consultation held in March 2014 and will expire on May 13, 2020.
The Start-up Prospectus Exemption permits a non-reporting issuer whose head office is located in a Participating Jurisdiction to issue eligible securities through online funding portals. The funding portals may either rely on the Start-up Registration Exemption or they may be operated by a registered dealer. While issuers are exempt from the prospectus requirement under this exemption, they must produce an offering document in the prescribed form containing basic information about the issuer, its management and the distribution, including risk factors, how the issuer intends to use the funds raised and the minimum offering amount. Issuers must also provide purchasers with a contractual right to withdraw within 48 hours of their subscription.
Under the Start-Up Prospectus Exemption, the issuer group is limited to raising aggregate funds of $250,000 per distribution, with individuals investing no more than $1,500 per distribution, and cannot complete more than two start-up crowdfunding distributions per calendar year, with each such distribution remaining open up to a maximum of 90 days. As the exemption is only available to non-reporting issuers, the eligible securities are subject to an indefinite hold period and can only be resold under another prospectus exemption, under a prospectus or four months after the issuer becomes a reporting issuer.
The Start-up Registration Exemption permits funding portals with a head office in Canada and a majority of Canadian-resident directors to facilitate distributions under the Crowdfunding Exemptions without being formally registered. Funding portals must provide certain information about the portal and each of its principals to the securities regulatory authorities of the Participating Jurisdictions at least 30 days prior to facilitating its first start-up crowdfunding distribution. Furthermore, funding portals must not provide any advice to or collect fees or commissions from purchasers of its eligible securities. Additionally, the funding portals cannot accept a subscription until the purchaser confirms its understanding of the offering document and the risk warnings available online.
Other conditions include that the funding portals: (i) receive payment from purchasers electronically through its website, (ii) maintain books and records for a period of eight years from the date a record is created, and (iii) either release funds to the issuer after the minimum offering amount has been reached and provided that all 48-hour rights of withdrawal have elapsed, or return the funds to the purchasers if the minimum offering amount is not reached or if the start-up crowdfunding distribution is withdrawn by the issuer. A participating regulator reserves the right to notify the funding portal that it cannot rely on the Start-up Prospectus Exemption because its principals or their past conduct demonstrate a lack of integrity, financial responsibility or relevant knowledge or expertise.
TSX Adopts Rule Amendments Regarding Security Certificates and Voluntary Delisting Requirements
On May 21, 2015, the Toronto Stock Exchange (“TSX”) adopted, and the OSC, rule amendments to the TSX Company Manual (the “Manual”) regarding the requirements for evidence of security ownership (the “Certificate Amendments”). As the Certificate Amendments were considered “Housekeeping Rules” in accordance with the Process for the Review and Approval of Rules and the Information Contained in Form 21-101F1, they have not been published for comment. The Certificate Amendments reflect the recent changes regarding how investors hold their securities and the trend away from physical certificates towards electronic book keeping. To improve efficiency and cost-effectiveness, CDS Clearing and Depositary Services Inc. (“CDS”) has committed to eliminating physical certificates for both existing issues and the issuance of new securities.
The Certificate Amendments include:
- amendments to Appendix D of the Manual providing for the following forms of evidence of security ownership: (i) certificated issue where listed securities are represented by a physical global certificate, (ii) uncertificated issue where listed securities are held uncertificated at a transfer agent, (iii) uncertificated issue where listed securities are held by registered owners through a transfer agent, and (iv) direct registration system that allows listed securities to be held in electronic form without having a physical security certificate issued as evidence of ownership,
- amendments made to Section 347 of the Manual providing that a TSX-listed issuer may appoint a transfer agent and registrar with a principal office in any of Vancouver, Calgary, Montreal or Halifax, in addition to Toronto, aligning the TSX requirements with those of the TSX Venture Exchange, and
- certain amendments to the TSX’s Listing Agreement and Listing Application.
The Certificate Amendments came into effect on May 21, 2015, and as of May 31, 2015, the new Listing Application and Listing Agreement are required by the TSX. The text of the final Certificate Amendments can be found in here.
On April 30, 2015, the TSX adopted, and the OSC approved, rule amendments to the voluntary delisting requirements (the “Voluntary Delisting Amendments”) in Section 720 of the Manual. The Voluntary Delisting Amendments were published for public comment on January 22, 2015; the TSX did not make any revisions to these amendments since the publication of the request for comments. Please click here for a summary of the Voluntary Delisting Amendments. The text of the final Voluntary Delisting Amendments can be found in here (Appendix B).
Amendments to Insider Trading and Record-keeping Requirements under the Ontario Securities Act
Effective as of June 4, 2015, the Ontario Securities Act (the “OSA”) has been amended to expand both the scope of insider trading liability as well as certain record-keeping requirements. As a result of the amendments, the previous restrictions against insider trading and tipping for “reporting issuers” have been broadened to apply generally to “issuers” whose securities are publicly traded, meaning that persons in a “special relationship” with an issuer will be prohibited from acquiring or disposing of securities of the issuer when in possession of knowledge of an undisclosed material fact or material change, and also prohibited from passing such information on to others.
Section 19(1) of the OSA previously only required records to be maintained which recorded a market participant’s (i) business transactions and financial affairs; (ii) the transactions it executed on behalf of others; and (iii) such other records as may otherwise be required under Ontario securities law. Section 19(1) of the OSA has been amended and its scope broadened to require that all market participants (including registrants, persons or companies exempted from the registration requirement, reporting issuers, and directors, officers and promoters of reporting issuers) must maintain books, records and other documents as required and necessary to demonstrate compliance with Ontario securities laws.
The amendments came into force effective June 4, 2015 in connection with Bill 91, the Building Ontario Up Act (Budget Measures), 2015, having received royal assent.
Canadian Securities Administrators Streamline Disclosure Requirements for Private Foreign Securities Offerings to certain Canadian Investors
On June 25, 2015, the CSA announced amendments (the “Amendments”) to National Instrument 33-105 Underwriting Conflicts (NI 33-105), aiming to streamline the process for private placements by non-Canadian issuers to “permitted clients” (typically institutional and other sophisticated investors).
“Wrappers” contain prescribed Canadian disclosure and other optional disclosure that is attached to the face page of an offering document. The purpose of these amendments is to eliminate the need prepare a such a “wrapper” when foreign issuers offer securities in Canada to permitted clients under a prospectus exemption.
In other changes related to the Amendments, the CSA also published amendments to Multilateral Instrument 45-107 Listing Representation and Right of Action Disclosure Exemptions, Ontario amendments to OSC Rule 45-501 Ontario Prospectus and Registration Exemptions and an Ontario-specific amendment to Form 45-106F1 Report of Exempt Distribution, all with the objective of implementing the wrapper relief described above.
Pending ministerial approval, the Amendments will come into effect on September 8, 2015.
CSA Highlights Issues in Reports of Exempt Distribution
On June 25, 2015, the CSA published a staff notice to highlight issues identified in some reports of exempt distribution filed pursuant to Form 45-106F1 Report of Exempt Distribution (the “F1”).
Issues observed by the CSA in its review of filed F1s include:
- Failing to use the correct form – the correct form for a report of exempt distribution is the F1, other than in British Columbia which uses Form 45-106F6 British Columbia Report of Exempt Distribution,
- Failing to file the F1 on time – the deadline for filing the F1 for issuers or underwriters relying on certain prospectus exemptions is generally 10 days after the distribution,
- Failing to include a complete list of purchasers in the F1 – if distributions are made in more than one jurisdiction, the issuer or underwriter must complete a single F1 identifying all purchasers, including purchasers that reside in the jurisdiction and those that do not, and file that report in each of the jurisdictions in which the distribution is made,
- Incorrectly identifying the number of purchasers – Item 7 of the F1 requires the total number of purchasers in each jurisdiction to be reported rather than the number of securities each purchaser purchased,
- Failing to disclose all commissions and finder’s fees – Item 8 of the F1 requires disclosure of compensation received or to be received by any person in connection with the distribution, including commissions, discounts or other fees or payments of a similar nature, which result from a distribution of securities, regardless of what the payment is called, but does not include payments for services incidental to the distribution (e.g., printing, legal or accounting services), and
- Failing to provide complete information regarding convertible or exchangeable securities distributed – if the security is convertible or exchangeable into an underlying security, Item 6 of the F1 requires inclusion of a description of the underlying security, the terms of conversion or exercise, and any expiry date.
Canadian Securities Administrators Propose Using SEDAR for Certain Exempt Market Filings
On June 30, 2015, the CSA, with the exception of Ontario and British Columbia, published for comment proposed amendments to National Instrument 13-101 – System for Electronic Document Analysis and Retrieval (SEDAR) and Multilateral Instrument 13-102 – System Fees for SEDAR and NRD (the “Proposed Amendments”).
The Proposed Amendments would require certain exempt market filings to be filed in electronic format on SEDAR as opposed to in paper format as currently required. The filings subject to the Proposed Amendments include reports of exempt distribution and offering memorandums, and the Proposed Amendments would require issuers to pay a $25 system fee per filing of a report of exempt distribution.
The goal of the Proposed Amendments is to improve the overall efficiency of the current system by enabling issuers to file electronically and avoid paper format filings, while also increasing regulators’ ability to analyze such filing documents and reducing their administrative burden.
Ontario and British Columbia are not participating in the Proposed Amendments as a result of having local systems in place to receive such filings electronically. The 60-day comment period for the Proposed Amendments ends on August 31, 2015.
Derivatives Reporting Commences for Local Counterparties
As we noted in our alert from late 2014, effective as of October 31, 2014, securities legislation in each of Ontario, Québec and Manitoba came into force that requires “local counterparties” which engage in derivative transactions to report certain derivatives transaction data to a designated trade repository. OSC Rule 91-507 Trade Repositories and Derivatives Data Reporting and the corresponding rules in Québec and Manitoba (collectively, the TR Rules) have broad application and any issuer or entity that engages in derivatives transactions, for hedging or speculative purposes, should be aware of its implications and reporting obligations. Commencing June 30, 2015, all derivative transactions involving a local counterparty (whether or not one is a derivatives dealer) must be reported to a designated trade repository. A local counterparty is a counterparty to a transaction if, at the time of the transaction, one or more of the following apply:
- the counterparty is a person or company, other than an individual, organized under the laws of Ontario, Québec or Manitoba, or that has its head office or principal place of business in Ontario, Québec or Manitoba;
- the counterparty is registered under the securities law of Ontario, Québec or Manitoba as a “derivatives dealer” or in an alternative category as a consequence of trading in derivatives; or
- the counterparty is an affiliate of a person or company described in paragraph (a), and such person or company is responsible for the liabilities of that affiliated party.
For details regarding what a derivatives dealer is, please see our discussion here.
OSC Sets Out Expectations for Businesses Planning to Operate Peer-to-Peer Lending Websites
The OSC issued a notice indicating its awareness of business operating or planning to operate peer-to-peer lending websites. The notice warns these businesses that depending on the underlying facts and circumstances, these lending arrangements may constitute “securities” as defined under the OSA. Any business that plans to operate a peer-to-peer lending website in Ontario should obtain legal advice and consider:
- The type of securities within the meaning of the OSA that are being offered under the proposed business model;
- The type of trades and distributions that will occur; and
- Whether the business needs to be registered as a dealer or adviser.
Revocation and Replacement of OSC Rule 13-502 Fees and OSC Rule 13-503 (Commodity Futures Act) Fees
On March 19, 2015, the OSC provided notice of ministerial approval of the revocation and replacement of OSC Rule 13-502 Fees and OSC Rule 13-503 (Commodity Futures Act) Fees. The revocation and replacement of these OSC Rules came into force on April 6, 2015.
Amendments to National Instrument 45-106 – Prospectus and Registration Exemptions and Consequential Amendments
On April 30, 2015, the OSC provided notice of ministerial approval of the amendments to National Instrument 45-106 – Prospectus and Registration Exemptions (NI 45-106 Amendments). The OSC also adopted amendments to other instruments that are consequential to the NI 45-106 Amendments. The rule amendments, together with related policy changes, came into force on May 5, 2015.
OSC Rule 32-505 – Conditional Exemption from Registration for United States Broker-Dealers and Advisers Servicing U.S. Clients from Ontario
On May 21, 2015, the OSC provided notice of ministerial approval of OSC Rule 32-505 – Conditional Exemption from Registration for United States Broker-Dealers and Advising Servicing U.S. Clients from Ontario. The OSC also adopted the related Companion Policy 32-505CP – Conditional Exemption from Registration for United States Broker-Dealers and Advisers Servicing U.S. Clients from Ontario (the Companion Policy). The rule, together with the companion policy, came into force on June 5, 2015.
Amendments to National Instrument 51-102 – Continuous Disclosure Obligations, National Instrument 41-101 – General Prospectus Requirements and National Instrument 52-110 – Audit Committees
On June 4, 2015, the OSC provided notice of ministerial approval of the amendments to National Instrument 51-102 – Continuous Disclosure Obligations, National Instrument 41-101 – General Prospectus Requirements, and National Instrument 52-110 – Audit Committees. The OSC also adopted policy changes to Companion Policy 51-102CP – Companion Policy to National Instrument 51-102 Continuous Disclosure Obligations, and Companion Policy 41-101CP - Companion Policy to National Instrument 41-101 General Prospectus Requirements. The amendments, together with the related policy changes, came into force on June 30, 2015.
CBB KNOWLEDGE CENTRE
Dutch Auction IPO
A Dutch auction IPO is an initial public offering auction structure in which the price of the offering is set after taking in all bids and determining the highest price at which the total offering can be sold. In this type of auction, investors place a bid for the amount they are willing to buy in terms of quantity and price.
If a company is using a Dutch auction IPO, potential investors enter their bids for the number of shares they want to purchase as well as the price they are willing to pay. For example, an investor may place a bid for 100 shares at $100 while another investor offers $95 for 500 shares.
Once all the bids are submitted, the IPO sharesale is assigned to the bidders from the highest bids down, until all of the shares are allocated. However, the price that each purchaser pays is based on the “clearing price”, or essentially the last successful bid. Therefore, even if you bid $100 for your 1,000 shares, if the last successful bid is $80, you will only have to pay $80 for your 1,000 shares.
When Google Inc. launched its initial public offering, it utilized a Dutch auction to set the IPO price.
DISCLOSURE TIP OF THE MONTH
Using Third Party Information
Information published by an issuer electronically is subject to the same securities laws and disclosure requirements as information disseminated by non-electronic means. An issuer who releases a document that contains a misrepresentation can be liable to an investor for damages if that investor acquires or disposes of an issuer’s security between the time that the document was released and the time that the misrepresentation is corrected.
National Policy 51-201- Disclosure Standards (NP 51-201) and the Toronto Stock Exchange’s Electronic Communications Disclosure Guidelines provide guidance for issuers who provide public access to third party information, such as analysts reports, news releases and company information, through an issuer’s website or other internet-based service. As a general practice, it is recommended that an issuer not post any investor relations information on its website that is authored by a third party, unless the information was prepared on behalf of the issuer, or is general in nature and not specific to the issuer. Information published on an issuer’s website must be as accurate as possible and an issuer must publish information regardless of whether the information is favourable or not. Therefore, information distributed by an issuer on their corporate website or other internet based service that is incomplete, incorrect, omits certain details or is out of date could potentially incur liability for that issuer.
Both NP 51-201 and the guidelines recommend that issuers not post third party information directly on their website. A company that redistributes an analyst's report to people outside the company risks being seen as endorsing that report. This could potentially result in the issuer becoming legally responsible for the content of the report and give rise to an obligation to correct the report if the issuer becomes aware that the content is, or has become, misleading. If a company elects to post to its web site or otherwise publish the names of analysts who cover the company and/or their recommendations, the names and/or recommendations of all analysts who cover the company should be similarly posted or published.
If an issuer decides to publish third party information, each of the following should be addressed: (i) the issuer should receive permission to reprint the third party content as such content may be subject to copyright protection; (ii) the information should be identified as representing the views of the third party and not necessarily those of the issuer; (iii) all the information should be reproduced so that it is not misleading; (iv) any updates, including changes in recommendations, should also be posted so that the issuer’s website does not contain any out-dated or possibly misleading information; and (v) the issuer should avoid selective posting - all third party reports should be posted.
As an alternative to posting all the reports, an issuer could provide a list of all analysts who follow the issuer with contact information so that the investor may contact the third party directly. This list should be complete and include all analysts and other third party authors that the issuer knows to follow it. If an issuer chooses to publish a list of analysts who follow the issuer, it may be difficult to keep track of all such analysts. Since issuers must provide the most accurate information possible on their website, the omission of certain analysts and third party reports may result in the issuer facing allegations of misleading or providing misrepresentations to investors. Similar concerns exist for other types of third party postings, such as news reports. If an issuer chooses to post news reports, they must ensure that all relevant news reports are published and that positive and negative reports are given similar prominence. Additionally, they must ensure that the news reports are up to date so as not to appear misleading.
An issuer may establish hyperlinks between its website and third party sites. If an issuer creates a hyperlink to a third party site, there is a risk that a viewer will not realize that he or she has left the issuer's web site. It is recommended that the issuer include a disclaimer stating clearly that the viewer is leaving the issuer website and that the issuer is not responsible for the content, accuracy or timeliness of the other site.
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