From the Regulators

Update on early warning reporting system project notes industry concerns

By James Langton |

Amid negative feedback from the industry, securities regulators are backing off from a plan to reduce the threshold where a shareholder would have to declare an ownership stake in an issuer from 10% to 5%, as required under the early warning system and take-over bid regime.

The Canadian Securities Administrators (CSA) announced Friday that they are scrapping a plan to lower the threshold for the early warning reporting regime from 10% to 5%, which it proposed back in 2013 in a bid to improve transparency in this area.

In an update on the early warning reporting system project, the CSA reports that it received over 70 comment letters on the proposal. The majority of letters raised concerns with the idea, including that: it could have unintended consequences; it would create a significant compliance burden; the Canadian market has many small issuers with limited liquidity; the proposals could signal investment strategies to the market, and; these negative consequences would outweigh the benefits of improved transparency.

As a result, the CSA has decided not to go ahead with lowering the reporting threshold, and it's also abandoning a plan to include "equity equivalent derivatives" for the purposes of determining the threshold for early warning reporting disclosure.

It is going ahead with various other amendments designed to improve transparency, such as: requiring disclosure of 2 % decreases in ownership; requiring disclosure when a shareholder's ownership interest falls below the reporting threshold; and, enhancing the disclosure requirements for early warning reports; among other changes outlined in a notice published today.

The CSA says that it believes that the intended final amendments will still improve transparency in the area. It intends to publish the final amendments in the second quarter of 2015.

"The final amendments, while not as extensive as the 2013 CSA proposals, are intended to address certain key issues and enhance the quality and integrity of the early warning reporting regime in a manner that is appropriate for the Canadian capital markets," said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission.