On March 14, 2013, the Canadian Securities Administrators (CSA) initially published for comment proposed rules relating to the early warning reporting system (2013 Notice). The 2013 Notice identified the CSA’s concerns regarding the transparency of disclosure of significant holdings of reporting issuers’ securities under the existing early warning reporting system. In particular, the 2013 Notice focused on whether the current reporting trigger of 10% of any class of voting or equity securities continues to be appropriate and on the adequacy of disclosure in early warning reports themselves. On October 10, 2014, the CSA published a revised notice that substantially amends the approaches suggested in the 2013 Notice. Most importantly, the CSA have now concluded not to proceed with their earlier proposal to reduce the current reporting threshold from 10% to 5% and not to include “equity equivalent derivatives” for purposes of determining the threshold for early warning reporting. This latest notice states that the CSA intend to proceed with final amendments to the early warning system (Final Amendments) which will:
- require disclosure of 2% decreases in ownership;
- require disclosure when a shareholder’s ownership interest falls below the reporting threshold (i.e., below 10%);
- make the alternative monthly reporting regime unavailable to eligible institutional investors in certain circumstances where the investor is engaged in proxy solicitation activities in respect of the issuer;
- restrict the circumstances in which lenders and borrowers of securities are exempted from compliance with the early warning requirements in connection to specific securities lending arrangements;
- provide guidance clarifying how the early warning system applies to certain derivative instruments;
- enhance and improve the disclosure requirements in the form of early warning report, particularly in respect of the investor’s intentions with respect to its position; and
- clarify the timeframes within which reports must be filed and news releases issued.
The Final Amendments are expected to be published in the first quarter of 2015. While the Final Amendments are not as extensive an overhaul as the draft amendments proposed in the 2013 Notice, the CSA believe that the Final Amendments will enhance the quality and integrity of the Canadian early warning reporting regime.