SECURITIES REGULATION AND IR

The Canadian Securities Administrators (“CSA”) recently announced important changes to the reporting requirements regarding securities ownership and the disclosure requirements regarding gender diversity; in each case aimed at improving transparency.

Early Warning Reporting

In October 2014, the CSA published for comment draft amendments (the “Draft Amendments”) to National Instrument 62-103 – Early Warning System and Related Take-Over Bid and Insider Reporting Issues (“NI 62-103”). The most important proposed amendment to the early warning reporting system would have reduced the reporting threshold for securities ownership from 10% to 5%. The equivalent reporting threshold in the United States is 5%. The Draft Amendments also proposed requiring disclosure of decreases in ownership of securities of 2% or more and enhancing the content of the disclosure in the early warning reports and news releases. The Draft Amendments further proposed requiring disclosure of certain hidden ownership and empty voting arrangements by requiring disclosure of ‘equity equivalent derivatives’ and requiring that eligible institutional investors that solicit proxies on matters relating to the election of directors or corporate actions involving an issuer’s securities be unable to use the alternative monthly reporting system.

On October 10, 2014, after consideration of over 70 comment letters received, the CSA made a surprising announcement that it had reconsidered certain elements of the Draft Amendments based in part on:

• unique features of the Canadian market compared to the United States and other markets, including the large number of smaller issuers and the limited liquidity of these smaller issuers and of the Canadian market;

• potential detrimental or inadvertent impact of certain of the Draft Amendments, such as hindering an investor’s ability to rapidly accumulate or reduce a large position and a signaling of investment strategies to the market;

• complexity and difficulty of applying a new early warning reporting trigger in respect of ‘equity equivalent derivatives’;

• significant administrative and compliance burden associated with implementing additional reporting obligations; and

• potential benefits of the enhanced disclosure being outweighed by the potential negative impact of implementing certain of the Draft Amendments.

The CSA concluded that it was not appropriate at this time to proceed with the proposal to reduce the reporting threshold from 10% to 5% and the proposal to include ‘equity equivalent derivatives’ for the purposes of determining the threshold for early warning reporting disclosure. In essence, the CSA determined that the benefit of certain proposed transparency measures was outweighed by the cost.

Subject to obtaining all necessary approvals, the CSA confirmed that it will be proceeding with the following final amendments to NI 62-103 (the “Final Amendments”), which the CSA believe will enhance transparency in a manner appropriate for the Canadian capital markets:

• requiring disclosure of 2% decreases in ownership;

• requiring disclosure when a shareholder’s ownership interest falls below the 10% reporting threshold;

• making the alternative monthly reporting system unavailable to eligible institutional investors, in certain circumstances, as described in the Draft Amendments;

• exempting lenders from disclosure requirements if they lend securities pursuant to a specified securities lending arrangement;

• exempting borrowers, in certain circumstances, from disclosure requirements if they borrow shares under a securities lending arrangement;

• providing guidance clarifying the current application of the early warning reporting requirements to certain derivatives and requiring disclosure of derivatives in the early warning report;

• enhancing and improving the disclosure requirements in the early warning report; and

• clarifying the time frame to file early warning reports and news releases.

Subject to obtaining all necessary approvals, the CSA intend to publish the Final Amendments in the second quarter of 2015.

Disclosure Regarding Women on Boards and in Senior Management

The CSA in Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Quebec and Saskatchewan (the “Participating Jurisdictions”) are implementing amendments to National Instrument 58-101 – Disclosure of Corporate Governance Practices. Interestingly, British Columbia and Alberta are not Participating Jurisdictions. The amendments do not differ materially from the amendments first proposed by the Ontario Securities Commission in early 2014.

The amendments will require non-venture listed issuers to provide disclosure regarding the following matters on an annual basis:

• director term limits and other mechanisms of renewal of the board of directors;

• policies regarding the representation of women on the board;

• the board’s or nominating committee’s consideration of the representation of women and the director identification and selection process;

• the issuer’s consideration of the representation of women in executive officer positions when making executive officer appointments;

• targets regarding representation of women on the board and in executive officer positions; and

• the number of women on the board and in executive officer positions.

The amendments are intended to increase transparency regarding the representation of women on boards and in senior management of non-venture issuers. In recent years, a number of governments and regulators around the world have been concerned by the underrepresentation of women on the boards of publicly traded companies. Certain jurisdictions have adopted or are considering adopting guidelines and/or disclosure requirements regarding gender diversity, notably the United States, United Kingdom, Australia and several European countries. The Participating Jurisdictions have determined that at this time the best way to promote gender diversity is by adopting a ‘comply or explain’ model.

It is anticipated that the amendments concerning gender diversity for non-venture listed issuers will come into force on December 31, 2014, after all required ministerial approvals have been obtained by the Participating Jurisdictions.

Hellen Siwanowicz is a Partner at McMillan LLP.