The CSA’s proposed changes to Canada’s issuer bid, take-over bid and beneficial ownership regimes are a starting point.
There appears room for more cross border workability and alignment with prevailing Canadian and, where applicable, US practices.
Our full analysis is here.
Key highlights as follows:
THE SELECTIVE REPURCHASE EXEMPTION
A constructive step but …
- The US Framework
It is based on meeting U.S. flexibility but has been proposed without comparative analysis of the U.S. framework.
Negotiated repurchases continue to appear materially less flexible than under the U.S. regime.
Canadian issuers, particularly inter-listed issuers, compete for capital with U.S. issuers and may trade contemporaneously in both countries, while institutional investors and intermediaries routinely participate in both markets.
It is recommended that the CSA undertake a broader review to achieve a more functionally aligned framework with the U.S.
- Codifying Discretionary Relief
Closer alignment with the discretionary relief routinely granted in connection with normal course issuer bids (NCIB) to facilitate block repurchases, where a significant market overhang exists, and under specified circumstances is recommended.
- The Proposed 5% Repurchase Limit in Any 12-month period
The proposed cap could be increased to at least 7.5% over 12 months, as a reasonable starting point that accommodates meaningful block liquidity while constraining market impact with a view to a near future increase to at least 10% if data indicates no adverse liquidity or fairness effects for non-participating holders.
A mandatory 24-month sunset review should be conducted to consider expansion.
- The Proposed Limits of 5 Persons and 5 Transactions in any 12-Month Period
Limits on the number of persons from whom securities may be acquired and the number of transactions permitted over any 12-month period under the exemption may be subject to increase, if data indicates no adverse liquidity or fairness effects for non-participating holders.
- The Proposed Liquid Market Criteria and Thresholds
These are overly stringent for many small-cap and micro-cap issuers (including “venture issuers”), particularly those listed on TSX Venture Exchange. According to the CSA’s own estimates, fewer than 10% of TSXV-listed issuers would meet the proposed criteria, effectively excluding precisely the issuers for whom a selective repurchase exemption would be most useful
It is recommended that the CSA consider either or both (i) a calibrated, venture-stage alternative test using scaled trading value and market value thresholds and/or (ii) a board liquidity determination supported by an independent financial advisor opinion in lieu of strict quantitative gates.
NORMAL COURSE ISSUER BIDS
Further standardization and enhancement of NCIB rules is also recommended.
A MISSING NATIONAL COST BENEFIT ANALYSIS
A cost/benefit analysis has not been produced on a national basis.
The OSC’s cost benefit analysis is transparent regarding its limitations, with further analysis needed of the proposals’ market effects.
ADDITIONALLY
Our analysis also includes:
Recommendations for the ‘equity equivalent concept and 90%-110% replication band.
Recommendations to reduce unnecessary filings and overreporting of early warning triggers.
Expanding exclusions to maximum securityholder conditions and increasing them beyond 50.
