CSA Revises Approach to Amending Early Warning Report Regime
The Canadian Securities Administrators (CSA) have provided an update on the status of proposed changes to the regime governing early warning reporting of significant holdings of issuers’ securities. Most notably, the CSA has determined not to reduce the reporting ownership threshold from 10 per cent to five per cent and not to include “equity equivalent derivatives” for the purposes of calculating an investor’s ownership level. However, the CSA has stated that, in order to enhance transparency of investor interests, it intends to proceed with other proposed amendments.
Previously, the CSA published for comment draft amendments to the framework for early warning reporting. See our March 2013 Blakes Bulletin: CSA Move to Enhance Transparency of Significant Voting Positions and Economic Interests
for more information. Despite broad support for the CSA’s enhanced transparency objective, a majority of commenters—particularly institutional investors—expressed concern regarding potential unintended consequences of certain proposed changes. Specifically, they cited the fairly large number of relatively illiquid small issuers in the Canadian market, the complexity and uncertainty of determining if “equity equivalent derivatives” trigger early warning disclosure, and the anticipated additional administrative and compliance burden on investors.
Reducing the early warning reporting threshold to five per cent would have provided issuers with more information concerning their shareholder base, potentially facilitating greater shareholder engagement by issuers, and provided more time for issuers to contend with potential hostile offerors or activist shareholders through earlier identification.
After considering the comments received, the CSA determined not to align Canada’s threshold for early warning disclosure with the five-per-cent threshold applicable in the U.S. and several other major foreign jurisdictions, and not to require investors to include economic interests held through “equity equivalent derivatives” in determining whether the reporting threshold has been met. However, the CSA stated that it remains committed to enhancing transparency and that it intends to publish final amendments in the second quarter of 2015.
The CSA indicated that, under the revised regime, early warning reports will need to include more detailed disclosure of investors’ future intentions and provide a more complete picture of investors’ ownership interests through reporting of derivatives holdings and certain securities lending arrangements in effect at the time of a reportable transaction. The CSA also noted that it intends to clarify the timeframe to file early warning reports and related news releases, add reporting triggers for two-per-cent decreases in security holdings of those who have filed early warning reports, as well as when ownership interests fall below the 10-per-cent reporting threshold, and make the alternative monthly reporting system unavailable to investors who solicit, or intend to solicit, proxies from securityholders of an issuer.
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