In December 2015 and January 2016, the Canadian Securities Administrators (“CSA”), the Toronto Stock Exchange (“TSX”) and the TSX Venture Exchange (“TSXV”) implemented, or announced the upcoming implementation of, a number of initiatives that will affect the capital raising efforts of issuers in Canada. A brief summary of each initiative follows.
Changes for Exempt Market Filings
In December 2015, the CSA confirmed that, commencing on May 24, 2016, issuers will be required to file reports of exempt distribution, offering memorandum and certain other offering documents in electronic format using the System for Electronic Document Analysis and Retrieval (“SEDAR”) when distributing securities to investors in all provinces and territories of Canada (except British Columbia and Ontario) in reliance upon certain capital raising exemptions found in National Instrument 45-106 (each a “Required Exempt Filing”). Exemptions which give rise to Required Exempt Filings include the ‘accredited investor,’ ‘friends, family and business associates’ and ‘offering memorandum’ exemptions, among others. Issuers may commence filing Required Exempt Filings on SEDAR on a voluntary basis without charge until implementation on May 24, 2016. Currently, issuers are required to make Required Exempt Filings by paper filing in applicable provinces and territories of Canada (except British Columbia and Ontario) with each applicable securities regulatory authority.
The CSA has branded these changes as beneficial to issuers due to the elimination of paper filings and the public availability of Required Exempt Filings in a consolidated location on SEDAR. Issuers may struggle to see the value of these benefits when considering the additional requirements imposed upon them as a result of these changes. These include:
- as noted above, the Provinces of British Columbia and Ontario are excluded from the requirement to file exempt market offering documentation on SEDAR. As a result, and as an example, an issuer distributing securities in British Columbia, Ontario and another jurisdiction in Canada will now be required to file a report of exempt distribution on three different electronic platforms: SEDAR; the British Columbia Securities Commission’s eServices; and the Ontario Securities Commission’s Electronic Filing Portal;
- non-reporting issuers that are required to make a Required Exempt Filing will now be required to create and maintain a SEDAR profile. Non-reporting issuers were not previously required to create a SEDAR profile and submitted documentation in paper format or using the British Columbia and Ontario electronic filing systems. The creation of a SEDAR profile will require non-reporting issuers to have a computer with Microsoft XP Professional, Microsoft Windows 7 Professional or Microsoft Windows Vista Business. These operating systems are largely obsolete and in many instances non-reporting issuers will be required to contract a third party filer at additional expense to undertake its Required Exempt Filings on SEDAR;
- the Required Exempt Filing process will require issuers to file two versions of reports of exempt distribution on SEDAR: a version which includes confidential purchaser information which will be filed on a private basis; and a version which omits confidential purchaser information which will be made public. This presents the potential for the inadvertent disclosure of confidential information on the part of an issuer; and
- a report of exempt distribution filing will attract a $25 filing fee which must be paid through SEDAR using a SEDAR account. In addition, filing fees payable to a securities regulatory authority in connection with a Required Exempt Filing must be paid through a SEDAR account. Obtaining a SEDAR account is an additional requirement which differs from creating a SEDAR profile. Issuers may elect to contract a third party at additional expense to manage its payments through SEDAR.
Further details regarding the documents which are required to be filed as Required Exempt Filings are set forth in the CSA notice dated December 3, 2015.
TSX and TSXV Provide Guidance Regarding Rights Offerings
With the recent implementation by the CSA of changes to the rights offering regime, both the TSX and TSXV have provided guidance with respect to their policies regarding rights offerings. The TSX has advised issuers that:
- notwithstanding that a rights offering circular is no longer subject to CSA review and approval prior to delivery to an issuer’s securities holders, the TSX will require pre-clearance of rights offering documents, including the rights offering notice (Form 45-106F14), together with the rights offering circular (Form 45-106F15) or rights offering prospectus (together the “Rights Offering Documents”). The Rights Offering Documents must be filed in draft form at least five trading days prior to finalization; and
- it has reduced the advance notification for the period to set the record date for all rights offerings from seven trading days to five trading days.
The TSXV has advised issuers that:
- it will require pre-clearance of the Rights Offering Documents, which must be filed in draft form. Unlike the TSX, the TSXV has not provided a specific deadline to issuers for pre-clearance;
- it has reduced the advance notification for the period to set the record date for all rights offerings from seven trading days to five trading days;
- it will, on application, grant waivers from the requirement that the subscription price of a security to be acquired on the exercise of a right cannot be less than $0.05, provided that the subscription price is not less than $0.01;
- the minimum exercise price of a warrant forming part of a unit to be acquired on exercise of a right must not be less than the current market price prior to the announcement of the rights offering and, in any case, not less than $0.05;
- it will approve, on application only, a rights offering where an issuer elects not to list the rights for trading and where the issuer discloses this fact in a news release; and
- it will not require shareholder approval of the creation of a new ‘control person’ as a consequence of a standby commitment provided the rights are listed on the TSXV, the subscription price is at a significant discount to the market price and such potential ‘control person’ has filed a personal information form with the TSXV.
Both the TSX and TSXV intend to amend their policies to reflect the above guidance upon receipt of all requisite regulatory approvals.
TSX Guidance on Normal Course Issuer Bids
On January 15, 2016, the TSX provided guidance regarding normal course issuer bids (“NCIBs”). Any issuer considering an NCIB is advised to review the guidance carefully. The guidance is presented in a useful question-and-answer format and covers:
- timing and document filing requirements for an NCIB;
- implementation considerations between an NCIB and an automatic share purchase plan;
- details concerning the calculation of average daily trading volume and its impact on the daily limit under an NCIB;
- requirements for interlisted issuers undertaking an NCIB on another marketplace outside Canada;
- details regarding the issued and outstanding and public float calculations;
- implications of the use of alternative trading systems in Canada;
- execution of block trades, purchases under non-independent plans and odd lot purchase programs;
- trading rules applicable to brokers carrying out an NCIB;
- the procedure for amending an NCIB; and
- reporting obligations under an NCIB.