This article provides a brief summary of the Toronto Stock Exchange (TSX) timely disclosure requirements and discusses (i) the circumstances in which an issuer may delay the disclosure of confidential information, (ii) market surveillance pre-notification procedures, and (iii) issues relating to the timing of board meetings and the disclosure of material information.
The TSX's timely disclosure requirements are based on the concept of "material information", which is comprised of the concepts of "material fact" and "material change". These latter two are distinct concepts that are defined in provincial securities legislation. Generally, they refer to either (i) a fact, or (ii) a change in the business, operations or capital of an issuer that in each case, if disclosed, would reasonably be expected to have a significant effect on the market price or value of an issuer's securities.
Provincial securities legislation requires immediate disclosure of a material change. The TSX's timely disclosure rules require immediate disclosure of material information.
what if the material information is confidential?
In limited circumstances, provincial securities legislation permits issuers to file material change reports on a confidential basis. The TSX's timely disclosure rules permit issuers to keep material information confidential on a temporary basis. In each case, the issuer must believe that disclosure would be unduly detrimental to its interests.
The TSX, for the purposes of its timely disclosure rules, has outlined examples of instances in which disclosure might be unduly detrimental, including where disclosure of information
- would prejudice an issuer's ability to pursue specific and limited objectives or to complete a transaction or series of transactions that are under way,
- would put the issuer at a significant competitive disadvantage, or
- concerning the status of ongoing negotiations would prejudice the successful completion of those negotiations.
The TSX states that the withholding of information based on the above standard must be infrequent and can only be justified where the potential harm to the issuer or investors caused by immediate disclosure may reasonably be considered to outweigh the undesirable consequences of delaying disclosure.
The TSX discourages delaying disclosure for a lengthy period of time, as the preservation of confidentiality becomes more difficult over time. Where an issuer chooses to delay disclosure of confidential information, the issuer should take precautions to reduce the risk of premature disclosure of the information. Such precautions would include, among other things, limiting the number of people within and outside of the organization to whom the information is disclosed, and monitoring movements in the issuer's stock.
The material fact and material change analysis often arises in regards to the existence of negotiations related to a sale or acquisition transaction. The existence of such negotiations is likely a material fact, but as outlined above, TSX rules permit issuers to keep such material information confidential in certain circumstances. In regards to provincial securities legislation, a review of relevant regulatory decisions suggests that the existence of negotiations related to a sale or acquisition transaction would likely not rise to the level of a material change until all proposed parties are firmly committed. We expect that this "firm commitment" would generally occur once all proposed parties have received the required board approvals and definitive agreements have been executed; however, this determination would ultimately need to be made on a case by case basis.
when do issuers need to pre-notify IIROC?
The Investment Industry Regulatory Organization of Canada (IIROC) is responsible for the market surveillance function in Canada. Among other things, IIROC monitors listed issuers' timely disclosure of material information. IIROC reviews news releases disclosing material information before such releases are disseminated to the public. Both the TSX and TSX Venture Exchange have retained IIROC to act as their regulation service provider. The TSX requires issuers to send a copy of all news releases to IIROC.
news releases disclosing material information
While the TSX requires that material information be disseminated immediately, the procedure for notifying IIROC of the dissemination of material information varies depending on the time of day at which the dissemination is to take place.
If material information is to be disseminated between 8 a.m. Eastern time and 5 p.m. Eastern time, the issuer must pre-file the news release with IIROC and obtain IIROC's sign off before disseminating the news release to the public. IIROC will then be in a position to determine whether a trading halt should be imposed.
If material information is to be disseminated before 8 a.m. Eastern time or after 5 p.m. Eastern time, the issuer should send a copy of the news release to IIROC at the same time as it disseminates the news release to the public. Issuers may also wish to call IIROC and leave a voicemail to alert IIROC that the issuer has disseminated a news release disclosing material information.
Any news release disclosing material information must be disseminated through a newswire service approved by the TSX.
news releases relating to non-material information only
An issuer disseminating a news release that discloses non-material information only should send a copy of the news release to IIROC at the same time as it disseminates the news release to the public. This procedure applies no matter what time of day the news release is to be disseminated.
However, as a practical matter, issuers are encouraged to take a conservative approach when assessing whether a news release contains material information, as the threshold for information that may potentially be "market moving" is quite low, particularly for smaller issuers. As a result, issuers may wish to pre-clear news releases with IIROC in all except the most obvious cases.
timing of board meetings and the disclosure of material information
The TSX's timely disclosure rules require immediate disclosure of material information. Where a decision made at a meeting of an issuer's board of directors constitutes material information, and where such meeting takes place between 8 a.m. Eastern time and 5 p.m. Eastern time (which are considered to be market hours), the issuer is required to immediately notify IIROC of the material information before it is disseminated to the public, notwithstanding the fact that the board meeting is continuing.
While it may appear reasonable to wait for the board meeting to conclude before notifying IIROC, the TSX has stated that immediate notification to IIROC by telephone is desirable in such circumstances. In these circumstances the issuer would likely be required to initially notify IIROC of the material information orally by telephone, and then contact IIROC again once the news release disclosing the material information has been prepared.
Where possible, it may be preferable for issuers to schedule board meetings either before 8 a.m. Eastern time or after 5 p.m. Eastern time, as during such times (which are considered to be outside of market hours) issuers are not required to pre-notify IIROC of the dissemination of material information to the public.
However, where a board meeting takes place during market hours and a decision is expected to be made at the board meeting, it would be prudent to have a draft news release prepared in advance. If the expected decision is reached, the news release can be reviewed and approved by the board and sent to IIROC immediately for pre-clearance, even while the board meeting continues.