Canada: Changes To The Canadian Early Warning Reporting System

Background

The Canadian early warning reporting system presently requires shareholders to report (by promptly issuing a press release and filing an early warning report within two business days) when their ownership, control or direction (collectively, "ownership") over voting or equity securities of a reporting issuer reaches 10%, and to further report at 2% increments thereafter, or when a material fact has changed in a previous report. Forming part of the take-over bid and insider reporting rules, the early warning reporting system ("EWR System") is intended to provide transparency when a person acquires a significant interest in a reporting issuer and requires the acquiror to disclose not only the details of the transaction and the level of the interest held, but also the intentions of the acquiror. To allow the market time to digest the information in an early warning report, the acquiror is prohibited from acquiring further securities of the reporting issuer until the expiry of one full trading day after filing the report.

Qualifying eligible institutional investors ("EIIs"), including large financial institutions and certain types of pension and mutual funds, that have no intention to make a take-over bid for securities of the reporting issuer or to propose a reorganization or business combination that would result in them having effective control over the reporting issuer or a successor to all or a part of the business of the reporting issuer, also have access to an alternative monthly reporting system ("AMR System") with less onerous reporting requirements. Rather than issuing conventional early warning reports and associated news releases, qualifying EIIs have the option to instead report their holdings, acquisitions and dispositions on a monthly basis in the form of an alternative monthly report (an "AMR Report").

Amendments

The Canadian Securities Administrators (the "CSA") have made changes (the "Amendments") to the EWR System and the AMR System, including:

  • new disqualifying grounds for AMR System eligibility;
  • streamlined content of early warning reports;
  • a new requirement to report ownership falling below the 10% threshold; and
  • guidance in the treatment of derivatives in respect of EWR System thresholds.

The CSA posits that the purpose of the Amendments is to make certain clarifications as well as to enhance and refine early warning reporting.

Summary of Changes

  • The EWR System now requires reporting of decreases in ownership of 2% or greater and of a change in ownership going below 10%.
  • Enhanced EWR System disclosure includes:

    • a requirement for more detailed information regarding the intentions of the acquiror and the purpose of the transaction;
    • new forms for early warning report disclosure;
    • a requirement for the filer to sign and certify the early warning report;
    • clarification of the information required in a news release filed in connection with an early warning report; and
    • clarification of the timeline to issue and file an early warning report and associated news release.
  • Clarification that securities lent or borrowed under "securities lending arrangements", in which securities are temporarily transferred from one party to another in exchange for a fee, may be subject to early warning reporting, but with exemptions for:
    • lenders in securities lending arrangements who retain control over voting of the securities being transferred; and
    • borrowers in securities lending arrangements involved in short selling such securities and who do not intend to and do not vote the securities.
  • Added guidance that certain derivative arrangements may be subject to inclusion for early warning and take-over bid purposes, namely when a counterparty holding the reference security would vote them in accordance with the wishes of the first party or when the first party has the ability, formally or informally, to obtain the reference security.
  • The addition of a further ground of disqualification of EIIs from the AMR System and additional disclosure requirements in AMR Reports.

Disclosure of Decrease in Ownership

The current EWR System requires the acquisition of 10% ownership or greater of a class of voting or equity securities of a reporting issuer before requiring the filing of an early warning report and news release. Similar reporting obligations exist for each 2% increase in ownership after the initial report.

Pursuant to the Amendments, dispositions of securities will trigger similar reporting requirements when there is a decrease of beneficial ownership below 10% of a class of voting or equity securities, and for each disposition resulting in a decrease of 2% or more until the 10% threshold is crossed.

EIIs using the AMR System are unaffected by this change. The requirement to report a decrease in securities held by such EIIs remains the same (i.e. when ownership falls below 2.5% multiples above 10%).

Enhanced Content and Clarified Timing of Early Warning Reports and News Release

Early warning reports will continue to be required within two business days following an applicable disposition or acquisition, but must now include: (i) greater disclosure in respect of the security holder's intention to acquire further securities of the issuer; and (ii) details concerning any agreements which may be in place for the voting rights or subsequent transfer of the securities.

As part of the Amendments, appendixes E, F and G of National Instrument 62-103 — The Early Warning System and Related Take-Over Bid and Insider Reporting Issues) will be replaced with three new forms: F1 for conventional filings; F2 for EIIs switching from monthly reporting to regular reporting; and F3 for use by EIIs using the AMR System. Each new form specifies the content required when making early warning or alternative monthly disclosure. The new forms serve a similar purpose as the old forms, but add additional disclosure requirements and a requirement for the filer to certify the disclosure.

The Amendments increase disclosure for the securities covered by the report being filed in the following manner:

  • whether the transaction or occurrence giving rise to the early warning report is a securities lending arrangement;
  • securities lending arrangements in effect at the time an early warning report is required, even if such securities lending agreements do not trigger a reporting requirement;
  • interest in a "related financial instrument" (as defined in National Instrument 55-104 — Insider Reporting Requirements and Exemptions ) such as puts, calls, derivatives or other instruments that alter the economic interest of or economic exposure to the reporting issuer;
  • agreements that have the effect of altering the filer's economic interest in the securities; and
  • additional detailed disclosure about the purpose of a party's acquisition or disposition of the securities.

News releases required by the EWR System must now be issued no later than the open of trading on the business day following the applicable disposition or acquisition and may incorporate by reference information included in the early warning report filed by the securityholder.

Clarification that Securities Lent or Borrowed may be subject to the Early Warning System

Securities that are temporarily transferred between parties as part of a securities lending arrangement are subject to early warning requirements and may be disclosable if the transfer triggers the early warning reporting threshold or exceeds the 2% incremental threshold. The Amendments introduce an exemption to this requirement for lenders engaging in "specified securities lending arrangements" whereby, among other things, the lender retains an unrestricted ability to recall such securities prior to the record date set for a shareholders meeting, or require the borrower to vote at the direction of the lender.

Borrowers party to securities lending arrangements involved in short-selling are also now exempt from the EWR System where the borrowed securities are disposed of within three business days of being acquired, the borrower will return the securities at a later date and where the borrower does not intend to vote and does not vote the securities.

Disqualification from the Alternative Monthly Reporting System

Consistent with the policy basis that an EII who is not acting as a passive investor should be required to report under the conventional early warning reporting regime, the Amendments disqualify EIIs from using the AMR System if such person solicits proxies to contest the election of a director nominee, or a reorganization, amalgamation, merger, arrangement or similar corporate action.

Additional Disclosure Requirements for Alternative Monthly Reports

Similar to the Amendments to early warning reports, disclosure in an AMR Report will need to include the material terms of:

  • any securities lending arrangement the EII or any joint actor is party to;
  • any interest the EII or joint actor has in related financial instruments; and
  • any other agreement or arrangement that the EII or joint actor is a party to that has the effect of altering, directly or indirectly, the EII's economic exposure to the security of the class to which the report relates.

The purpose of the transaction and any plans or future intentions of the EII that would result in a number of enumerated transactions or changes that are specified in Item 4 of Form 62-103F3 such as changes in the capitalization, business, charter documents or board of directors of a reporting issuer will also need to be disclosed.

Application of Early Warning System to Derivatives

While the Amendments do not modify the rules respecting the application of the EWR System with respect to derivatives, new guidance has been added to National Policy 62-203 — Take-Over Bids and Issuer Bids to clarify when derivatives may be excluded from the determination of whether an early warning threshold has been triggered. Generally, if a party holding the derivative may obtain a voting or equity security, or otherwise direct the voting of that security, such party is deemed to have ownership, and under such circumstances derivatives would be included in determining whether an early warning threshold has been triggered. Cash-settled derivatives and physically-settled derivatives, whereby the holder will not be entitled to acquire equity securities within 60 days, will generally not be included when determining if the early warning thresholds have been triggered.

Effectiveness of the Amendments

The Amendments are to come into force concurrently with the changes to the take-over bid regime on May 9, 2016, as we reported in our previous bulletin.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions