Introduction
On January 22, 2021, the Capital Markets Modernization Taskforce (Taskforce) released its final report (Report). The Taskforce was established by the Ontario Provincial Government to help transform the regulatory landscape for the capital markets sector, and advise the Minister of Finance on how to improve the innovation and competitiveness of the Province’s capital markets and best help build Ontario’s economy.
The Report includes 74 policy recommendations designed to amend securities laws in the following areas:
- improving regulatory structure to enhance governance
- improving competitiveness through regulatory measures
- ensuring a level playing field between large and small market players
- improving the proxy system, corporate governance and the process of mergers and acquisitions
- fostering innovation
- modernizing enforcement and enhancing investor protection
Because of the far reaching nature of the numerous recommendations, BAX will do a series of articles over the next few weeks on recommendations of interest to small and midcap issuers and the registrants that service them.
Recommendation #16 – Alternative Offering Model for Reporting Issuers
According to the Report, the high costs associated with preparing and filing a prospectus can prove to be a barrier to capital-raising for smaller issuers. The purpose of this recommendation is to place greater reliance on a reporting issuer’s continuous disclosure record to support investment decisions rather than the filing of a prospectus for ordinary course financings. Issuers will be able to raise data based on a their continuous disclosure record and a short disclosure document rather than a prospectus.
The recommended alternative offering model offers a prospectus exemption for all reporting issuers, with securities listed on an exchange that are in full compliance with their continuous disclosure requirements.
The prospectus exemption would include conditions such as:
- The issuer must have been a reporting issuer for 12 months;
- The issuer must be up to date with its continuous disclosure and not be in default;
- Securities offered under this prospectus exemption must be of a class that is listed on an exchange;
- The offering must be subject to an annual maximum; and
- Issuers must file a short disclosure document with the appropriate regulator to update the continuous disclosure record for recent events (including information regarding the use of proceeds) and certify its accuracy. Both the disclosure document and certificate would be required to be filed on the System for Electronic Document Analysis and Retrieval (SEDAR) or an updated system.
The Report recommends that the annual maximum for offerings under this exemption should be set at ten percent of market capitalization as of the beginning of a set annual period. For smaller issuers with a market capitalization under $50 million, the annual maximum should be the lesser of $5 million or 100 percent of the issuer’s market capitalization.
Because the remedies for investor losses in secondary market trading for misrepresentations in its continuous disclosure record are more limited than the remedies for a misrepresentation in a prospectus, the Report has recommended that, under this prospectus exemption, an investor should have the right to an effective remedy against the issuer if the offering document used to sell securities contains a misrepresentation with the same liability as under a prospectus offering.
For a full copy of the Report: https://files.ontario.ca/books/mof-capital-markets-modernization-taskforce-final-report-en-2021-01-22-v2.pdf
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.
