CANADIAN UPDATE – 2013 Canadian Capital Markets Report: Looking Back, Looking Forward
Executive Summary: Capital markets in Canada have followed the trend experienced in global capital markets recently, showing mixed results. A measured level of optimism for economic rebound in some parts of the World in the last year or so was tempered by the continued European debt crises and the fears regarding the U.S. fiscal cliff. With only part of the U.S. fiscal cliff having been addressed and the continued concerns about Europe and Asia, Canadian capital markets may continue to experience a degree of uncertainty.
Developments on the legal front in Canada and the U.S. followed economic trends with legislative and governance efforts focusing on areas that figured prominently in capital markets activity.
Developments in 2012 and What to Watch for in 2013
IPOs – In 2012, $1.8 billion of new equity was raised in Canada. Companies and their management must be well prepared to take advantage of the opportunity this apparent growth trend suggests.
Mining Company Disclosure – Several Canadian and U.S. developments on disclosure requirements will impact both junior and senior mining companies. Regulators in Canada increased their focus on the technical disclosure of mining issuers and challenged the appropriateness of many preliminary economic assessments. In the U.S., the SEC issued final rules for mining and other resource extraction issuers to disclose payments made to governments and rules relating to conflict mineral disclosure.
Exempt Market – Last year, Ontario issuers raised $142.9 billion in reliance on exemptions from the prospectus requirements. The Ontario Securities Commission has issued a concept paper discussing new capital raising exemptions in an effort to foster even greater access to the exempt markets. The section includes a discussion of an offering memorandum exemption, crowdfunding exemption and exemptions based on the sophistication of the investor or the receipt of advice from a registrant.
Shareholder Democracy – Corporate governance continued to be a rapidly evolving area in 2012 with a number of new developments introduced, including new TSX rules regarding the election of directors, the emergence of advance notice by-laws and lessons learned about “empty-voting”.
Proposed Changes to early Warning Reporting System – The Canadian Securities Administrators have published for comment significant changes to the rules requiring public disclosure of shareholdings in a public company. The proposal would, among other things, reduce the reporting threshold from 10% to 5% and require reporting of “hidden ownership” and certain “empty voting” positions.
Update on National Regulator Initiative – The initiative to establish a single, Canadian securities regulator suffered a major setback in its efforts when the Supreme Court of Canada ruled in December 2011 that legislation proposed by the federal government creating a single national securities regulator is unconstitutional. Efforts towards a negotiated, cooperative approach towards a single regulator have not had any success.
The Canadian Federal budget for 2013 provides clues to what the Federal government may attempt to do in light of the current status of their initiative.
Proxy Advisory Firms – Canadian regulators began to focus on proxy advisory firms in 2012, in light of the important role they play in the shareholder voting process which becomes more acute as shareholder activism continues to be on the rise. Regulators are seeking views on a range of potential concerns, including a lack of transparency on how proxy advisors arrive at their vote, the potential inaccuracies and the limited opportunity for issuer engagement.
Emerging Market Issuers – During 2012, Canadian and U.S. regulators expanded their review of the risks associated with emerging market issuers increasing their focus on the “gatekeepers” involved in bringing these issuers to the North American markets.
Impact of Trading OTC – Recently adopted Multilateral Instrument 51-105 – Issuers Quoted in the U.S. Over-the-Counter Markets deems certain issuers that trade over-the-counter in the U.S. to be reporting issuers for purposes of Canadian securities laws. The objective of the instrument is to discourage the manufacture and sale of “shell companies” traded in the U.S. This overly broad instrument may have unintended consequences for foreign issuers that are not engaged in abusive practices.
Wrapper Relief – The Ontario Securities Commission granted exemptive relief to several dealers allowing them to offer foreign securities to certain institutional investors in Canada using a prospectus or other offering document prepared in compliance with U.S. securities laws. The U.S. offering document will no longer have to be “wrapped” to include certain mandated Canadian disclosure. The order significantly lowers the technical barriers to entry for private placements by foreign issuers into Canada. It will improve access to foreign securities for the benefit of Canadian institutional investors and, indirectly, the many Canadian retail investors whose money they manage.
Regulation of Non-Resident Investment Fund Managers – New registration requirements were introduced in the provinces of Ontario, Québec and Newfoundland and Labrador, requiring non-resident investment fund managers to register in those provinces, but not in the other provinces of Canada.
U.S. Law Developments – The “JOBS” Act was signed into law in April 2012 in the U.S. and includes a number of initiatives to promote job creation and further economic growth in the U.S. by facilitating capital market raising activities and aiming to reduce regulatory burdens on smaller issuers.
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