The past year was a roller coaster of a year for Canadian capital markets, beginning much how it ended – with a devalued Canadian dollar, lower interest rates in Canada and a shift in regional growth from the west to central Canada. Against the background of these market realities, the focus of the Canadian securities regulators for 2015 was to modernize regulation in an effort to improve the efficiency and integrity of Canadian capital markets.
We are pleased to provide you with an overview of some of the more notable developments in Canadian capital markets in the past year and to share with you our insights on those developments and their impact for 2016.
- The proposed "quasi-national" Capital Markets Act garnered significant attention again in 2015. Notwithstanding comments provided by Davies on a prior draft of the Act, the participating regulators continue to model the Act and regulations on the legislation of British Columbia, where the capital market comprises smaller issuers and which has historically faced very different securities regulatory issues than Ontario. This choice is difficult to defend on a principled basis and has led many to question The High Price of Cooperation: The Latest Capital Markets Act.
- In 2016, Canadian regulators announced the final adoption of previously proposed amendments to Canada's take-over bid regime. The new rules are designed to shift the balance of power between target boards and shareholders by extending the minimum bid period to 105 days and mandating a minimum 50% tender condition. Read more about the final rules in Take-over Bid Code Reset: 50-10-105.
- Five initial public offerings by Special Purpose Acquisition Corporations, or SPACs, were completed in 2015, raising over $1.1 billion. The continued viability of this asset class depends on SPAC sponsors finding suitable targets and, to date, no Canadian SPAC has completed a qualifying acquisition. Nonetheless, SPACs Have Arrived in Canada: Will They Stay?
- Canada has been waiting for decades for a modern, comprehensive regulatory regime for offshore offerings. In August 2015, regulators in British Columbia, New Brunswick, Ontario, Prince Edward Island, Saskatchewan and Yukon proposed a new offshore offering regime under the Capital Markets Act. Unfortunately, the proposal is the opposite of progress. Instead of moving forward with a modern approach in line with offshore regulation in other jurisdictions, Canada could be left with a Blast from the Past: Canada's Proposed Offshore Offering Rules Take a Step Back (in Time).
- After a long period of low activity, several issuers accessed Canadian capital markets in 2015 with dual-class share structures. Opponents of the structures argue that they are unfair, contrary to shareholder democracy and open to abuse. Others have argued that dual-class share structures are advantageous because they allow directors and management to focus on the long-term success and profitability of the company. Read more about these controversial yet popular structures in Dual-Class Share Structures: A View from the North.
- During 2015, Canadian securities regulators were busy finalizing and adopting many of their various initiatives relating to prospectus-exempt distributions, with a view to facilitating easier access to capital and strengthening investor protection. Although the recognition of the need to liberalize the exempt market is laudable, the resulting rules have left a disturbing lack of harmonization across jurisdictions. Read about the new and "improved" prospectus exemptions in Overview of Exempt Market Developments.
- Davies blew the whistle on the proposed Whistleblower Program published by the Ontario Securities Commission in early 2015. In our comments, we highlighted some flaws in the program, including the perverse incentives that financial rewards create and the inappropriate message that will be sent to the market if the OSC allows culpable individuals to receive whistleblower awards. Nonetheless, the regulator is intent on moving forward with The Ontario Securities Commission's Proposed Whistleblower Program.
- In 2015, rule amendments came into force that codified and replaced certain discretionary "wrapper relief" orders previously granted to various U.S. and Canadian securities dealers. The rule amendments also significantly expanded the scope of those relief orders and eliminated many lingering issues. As a result, the vast majority of U.S.-registered and non-registered offerings of "eligible foreign securities" can now be extended into Canada without the need for a Canadian wrapper. We have unwrapped these rule amendments in New Wrapper Exemption Introduced.
- As in Canada, securities regulators in the United States introduced several capital-raising and corporate governance initiatives in 2015. Our U.S. update, Recent SEC Rulemaking Developments, provides an overview of some of these initiatives that may affect Canadian issuers.