On May 26, 2021, the British Columbia Securities Commission (BCSC) published for comment a new rule that is designed to make promotions of companies with a connection to British Columbia to become more transparent.
According to the BCSC, the new rules are designed to enable people to better evaluate the reliability of statements that encourage investment in issuers of securities, often made with the aim of driving up an issuer’s share price.
The rules would apply to newsletters, financial blogs, emails, oral statements, social media posts, videos or any other communications, in any platform or medium, and would require promotional communications to disclose:
- The name of the issuer on whose behalf the promotion is being conducted;
- Compensation being paid for the promotion;
- Whether the person conducting the promotion owns securities or derivatives related to the issuer;
- Where the promotion is taking place; and
- Any other facts that would interfere with the objectivity of the person doing the promotion.
The proposed requirements – the first of their kind in Canada – stem from Securities Act amendments that give the BCSC greater power to regulate promotional activity, which is sometimes conducted by issuers, by shareholders, and by third parties. The BCSC can now regulate promotional activity regardless of whom is actually conducting it.
The new requirements would apply to all promotional activity that occurs in, or has a real or substantial connection to, BC, with certain exceptions.
The BCSC is also proposing a couple of other requirements for venture issuers, as defined in the proposed BC instrument:
- A venture issuer that outsources promotions would have to issue a news release specifying who it retained, the platforms on which the promotion will appear, and the compensation paid for the promotion. If a significant change occurs to any of this information, the issuer would have to issue an updated news release.
- A venture issuer with promotional activity exceeding ten per cent of its total operating expenses in a year (or interim period) would have to disclose those expenditures in its interim and annual reports.
“Some companies have a legitimate need to engage in promotional activities and they should have no trouble complying with the proposed rules,” Brady said. “But abusive stock promotions are a scourge that go hand in hand with abusive trading, and the new rules would give us one more tool to tackle them.”
The BCSC is seeking comments on the proposed rules by July 26, 2021.
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.