The Corporate Finance division of the Autorité des marchés financiers (AMF) recently released its third annual Summary of Oversight and Regulatory Activities (Report). Along with an overview of Quebec’s capital markets, the Report provides constructive feedback for issuers arising from the AMF’s oversight activities, as well as information on the development and the implementation of guidance and regulations for insiders and reporting issuers in Quebec. We highlight below some of the Report’s key takeaways.
QUEBEC CAPITAL MARKETS
- 696 companies (out of a total of 1,957 reporting issuers in Quebec) had Quebec as their principal regulator in 2018, a decrease from 724 companies (out of a total of 2,026 reporting issuers in Quebec) in 2017. Of those, 56 per cent were venture issuers, principally consisting of issuers listed on the TSX Venture Exchange (TSXV), and 44 per cent were other issuers.
- Total market capitalization of Quebec companies decreased from C$440-billion in 2017 to C$396-billion in 2018, but still accounted for 16 per cent of the aggregated market capitalization of companies in Canada.
- The number of Quebec companies listed on the Toronto Stock Exchange (TSX) and the TSXV has slightly decreased from 189 to 184, in keeping with the downward trend of the past ten years in both Quebec and Canada as a whole. At the same time, the Report notes that 13 Quebec companies were listed on the Canadian Stock Exchange (CSE).
- After two consecutive years without a Quebec initial public offering (IPO) on either the TSX or TSXV, last year, Quebec companies completed one IPO on the TSX, one IPO on the CSE, three IPOs on the TSXV by capital pool companies, one IPO for the sole purpose of listing securities on the TSX and four reverse takeovers or qualifying transactions.
- In total, 452 prospectuses were filed in Canada in the last year, 150 of which were filed in every Canadian province (33 per cent) and 91 were filed in every Canadian province, excluding Quebec (20 per cent). The remaining 211 prospectuses were filed in only certain Canadian provinces (47 per cent), including Quebec in some cases.
- During the past year, Quebec companies raised C$3.7-billion on the public market and C$8.1-billion on the exempt market, for a total of C$11.8-billion, down from C$13.3-billion in 2018 and C$16.3-billion in 2017.
- Of Quebec companies listed on the TSX, 92 per cent have at least one woman on the board of directors and 30 per cent have at least three women sitting on the board. These figures have been steadily climbing over the past few years.
Management’s Discussion and Analysis
The Report notes that deficiencies in management’s discussion and analysis (MD&A) were among the most common issues raised in continuous disclosure reviews conducted by the Canadian Securities Administrators (CSA). The AMF notes that the MD&A of some issuers disclose proposed activities which are often incomplete or of a promotional nature, reminding issuers that announcements about a business expansion must disclose complete facts and risks, and not contain promotional commentary on potentially quick profits.
Marketing Materials vs. Standard Term Sheet
The AMF notes that, in connection with distributions taking place by way of prospectus, certain issuers confuse a standard term sheet with marketing materials. Unlike the marketing materials which contain more detailed information, a standard term sheet does not have to be filed on System for Electronic Document Analysis and Retrieval (SEDAR) and must not contain any information other than what is prescribed in the securities legislation. The information in both the standard term sheet and the marketing materials must, however, be included in the relevant prospectus.
Problematic Promotional Activities
The AMF restated in the Report its concerns regarding promotional activities that are not compliant with applicable securities laws, particularly in the mining sector. On November 29, 2018, the CSA released CSA Staff Notice 51-356 Problematic promotional activities by issuers, which cautions companies to avoid disclosure and promotional practices that are manipulative or that may mislead investors. For more information on the CSA’s staff notice, please see our December 2018 Blakes Bulletin: CSA Warn Against Certain Problematic Promotional Activities.
Shareholder Approval Under Complex Transaction Structures
The AMF highlights in its Report that issuers are making increasing use of complex transaction structures, which often lack adequate disclosure to shareholders, as compared to the more comprehensive disclosure usually prescribed for similar transactions with a simpler structure. The disclosure relating to the transaction must provide enough information for the shareholders to make an informed decision on the transaction and on its various steps.
As an example, the AMF refers to an issuer which obtains the approval from its securityholders in order to delist its shares from a stock exchange, but omits to disclose that after the delisting, it will complete a restructuring transaction and then list its shares on another stock exchange. In this scenario, the AMF considers that the subsequent transactions should be disclosed to the securityholders approving the delisting in order for them to be able to make an informed decision.
The AMF further notes that it will intervene where the information disclosed to shareholders regarding the transaction or its structure is incomplete or insufficient. In this regard, the AMF also announces in its Report that it has expanded its artificial intelligence oversight tools and has developed and implemented a real-time alert and analysis system, affording heightened oversight of companies having their head office in Quebec.
AT-THE-MARKET (ATM) DISTRIBUTIONS
On May 9, 2019, the CSA published for comment Proposed Amendments to National Instrument 44-102 Shelf Distributions and its Companion Policy (Proposed ATM Amendments) that would permit ATM distributions of equity securities in Canada to proceed without the need for an exemptive relief order from Canadian securities regulators.
The AMF reminds issuers in its Report that, as indicated in the Proposed ATM Amendments, since ATM distributions are made through stock exchanges accessible in all jurisdictions, such distributions cannot exclude Quebec. As a result, issuers making ATM distributions are required to file their base shelf prospectus and ATM supplement in Quebec. We note that this, in turn, triggers the requirement to file a French version of such documents, including all documents incorporated by reference therein, unless an exemption from Quebec’s translation requirements is obtained. For more information on the Proposed ATM Amendments, please see our May 2019 Blakes Bulletin: CSA Propose Rules to Streamline “At-The-Market” Equity Offering Process for Canadian Issuers.
CRYPTO ASSET TRADING PLATFORMS
The AMF is actively engaged in a working group with other regulators focusing on regulatory issues relating to crypto assets and their oversight.
On March 14, 2019, the CSA and the Investment Industry Regulatory Organization of Canada (IIROC) jointly published Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms, in which they sought feedback from industry actors on crypto asset trading platforms. As the comment period ended on May 15, 2019, the Report notes that the CSA and IIROC are currently in discussions with international regulators regarding the approach for the regulation of crypto asset trading platforms. For more information on the CSA and IIROC’s consultation paper, please see our March 2019 Blakes Bulletin: Now’s Your Chance: CSA Seeks Input on Regulation of Crypto Asset Trading Platforms.
RENEWED RECORDS FILING SYSTEMS
The CSA are working on a digital transformation program to, among other things, replace SEDAR, the System for Electronic Disclosure by Insiders (SEDI), the National Registration Database (NRD) and various local records filing systems.
On May 2, 2019, the CSA published CSA Notice 13-103 and Request for Comment – Proposed National Systems Renewal Program Rule and Related Amendments and CSA Notice 13-102 and Request for Comment – Proposed Repeal and Replacement of Multilateral Instrument 13-102 System Fees for SEDAR and NRD, which set out the requirements and procedure for the new electronic system. The first phase of the project is expected to be implemented in 2021. For more information on the CSA’s notices seeking input on the new records filing system, please see our May 2019 Blakes Bulletin: CSA Propose New National Records Filing System to Replace SEDAR, SEDI and NRD.
CURRENT AND PLANNED ISSUE-ORIENTED REVIEWS
The Report states that during the coming year, the AMF will focus on issue-oriented reviews in the following areas:
- Financial statements, in order to ensure compliance with the new IFRS standard on leases
- Information circulars and filing statements filed in connection with a reverse takeover or qualifying transaction, in order to ensure that these materials comply with regulatory requirements
- Technical reports of mining companies, in order to ensure that these materials comply with the requirements in Item 14 (Mineral Resources Estimates) of Form 43-101F1 and to verify the qualifications of the qualified person responsible for the disclosure of mineral resources