CSA Propose Amendments to Streamline Venture Issuers Disclosure

Authors: Sébastien Roy, Nicolas Morin and Neil Kravitz

On May 22, 2014, the Canadian Securities Administrators (the CSA) published for comment proposed amendments to National Instrument 51-102 Continuous Disclosure Obligations (referred to in Québec as Regulation 51-102 respecting Continuous Disclosure Obligations) (collectively, NI 51-102), National Instrument 41-101 General Prospectus Requirements (referred to in Québec as Regulation 41-101 respecting General Prospectus Requirements) (collectively, NI 41-101) and National Instrument 52-110 Audit Committees (referred to in Québec as Regulation 52-110 respecting Audit Committees) (collectively, NI 52-110). The CSA concurrently published for comment proposed amendments to the companion policies or policy statements for NI 51-102 and NI 41-101. 

The proposed amendments aim mainly at streamlining the continuous disclosure requirements for venture issuers. “Venture issuers” are reporting issuers whose securities are not listed on the Toronto Stock Exchange, any national securities exchange in the United States (such as the New York Stock Exchange (NYSE) and the NYSE MKT (formerly the American Stock Exchange)), the NASDAQ Stock Market or any other foreign exchanges, other than the Alternative Investment Market of the London Stock Exchange (AIM). In Canada, venture issuers are commonly issuers whose shares are listed on the TSX Venture Exchange, or alternatively, on the Canadian Stock Exchange (CSE).

The proposed amendments follow a similar initiative introduced by the CSA in 2011, on which we commented at the time in the form of National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers (referred to in Québec as Regulation 51-103 respecting Ongoing Governance and Disclosure Requirements for Venture Issuers) (collectively, “Proposed NI 51-103”) which proposed a more thorough review of the continuous disclosure obligation regime for venture issuers. Considering the lack of support for such a plan, the CSA ultimately abandoned the proposed new regime and introduced a middle-of-the-road alternative in the form of the currently proposed amendments. These amendments aim at achieving a similar goal of reducing some of the regulatory burden which falls on smaller issuers and allowing them to shift management focus on the business itself, while maintaining an acceptable level of governance safeguards.

In summary, the proposed amendments are as follows:

  • venture issuers with no significant revenues will have the ability to file reports in the form of quarterly highlights instead of interim management’s discussions & analysis (“MD&A”);
  • venture issuers will be allowed to elect a much simpler form of disclosure for executive and director compensation arrangements;
  • the thresholds for venture issuers for the preparation of a business acquisition report (a “BAR”) will be increased;
  • venture issuers will be required to form audit committees composed of at least three members, a majority of whom may not be executive officers, employees or control persons; and
  • venture issuers conducting an initial public offering (IPO) will be required to present only two-year audited financial statements in their IPO prospectuses.

Venture Issuers Amendments

MD&A Requirements

Currently, unless otherwise disclosed in the venture issuers’ financial statements, venture issuers without significant revenues from operations in either of their last two financial years must include in their interim MD&A a breakdown of material components of (i) exploration and evaluation assets or expenditures (on a property-by-property basis if the venture issuer is a mining issuer), (ii) expensed R&D costs, (iii) intangible assets arising from development, (iv) G&A expenses, and (v) any material costs, whether expensed or recognized as assets not already disclosed.

Pursuant to the proposed amendments, venture issuers without significant revenues in the most recently completed financial year will be able to elect to file (a) MD&A for the three, six and nine-month periods under the current Item 2.2 of Form 51-102F1 Management’s Discussion & Analysis (“Form 51-102F1”), or (b) new “quarterly highlights” for such periods under proposed Item 2.2.1 of Form 51-102F1. The new quarterly highlights will contain a short discussion of the issuers’ operations and liquidity, including known trends, demands, major operating statistics and changes thereto, commitments, events, expected and unexpected, or uncertainties that have materially affected the issuers’ operations and liquidity in the relevant quarter or that are reasonably likely to have a material effect going forward. However, venture issuers will not be allowed to use the new streamlined version of their MD&A for their first interim MD&A. Similarly, fourth quarters disclosure will continue to be included in annual MD&A.

Disclosure of Executive Compensation

Pursuant to the proposed amendments, a venture issuer may elect to provide compensation disclosure under the same form as previously provided (Form 51-102F6 Statement of Executive Compensation) or under a new more tailored form (Form 51-102F6V Statement of Executive Compensation – Venture Issuers). Among other things, new Form 51-102F6V:

  1. streamlines the disclosure with respect to the compensation governance and compensation discussion & analysis to include information that is more tailored to the reality of venture issuers;
  2. reduces the number of executive officers for whom the compensation disclosure must be included to: (1) the Chief Executive Officer (or the individual acting in such capacity), (2) the Chief Financial Officer (or the individual acting in such capacity), and (3) the other most highly compensated individual whose total compensation exceeded $150,000;
  3. reduces the number of years for which the information on executive compensation must be presented from three to two years, but increases the period for the director compensation information from one to two years;
  4. simplifies the information with respect to compensation securities (e.g., stock options, stock appreciation rights, deferred share units and restricted share units) issued or granted to the executive officers and directors;
  5. includes information about the exercise by the executive officers and directors of compensation securities;
  6. includes a description of the material terms of any agreement or arrangement under which compensation was provided to an executive officer or a director as opposed to only those agreements or arrangements that provide for payments in connection with a resignation, retirement, change of control of the issuer or change in the individual’s responsibilities; and
  7. includes a description of the material terms of the venture issuer’s stock option plan or any other compensation plan.

BAR Requirements

Pursuant to the proposed amendments, the thresholds for an “acquisition” (as defined in NI 51-102) to be a “significant acquisition” and therefore trigger the requirement to file a BAR for venture issuers, will be increased from 40% to 100%. Therefore, an acquisition will only be a significant acquisition if the result of the “asset test” or the “investment test” (as each is described in NI 51-102), or alternatively, the “optional asset test” or the “optional investment test” (as each is described in NI 51-102), exceeds 100% of the consolidated assets of the venture issuers. This amendment should result in a substantial decrease of the occurrences in which a BAR must be prepared and filed.

In addition, venture issuers will not be required to include pro forma financial statements with the BAR.

Audit Committee Composition

Pursuant to the proposed amendments, audit committees of venture issuers must be composed of at least three members, the majority of whom may not be executive officers, employees or control persons of the venture issuer or of an affiliate (i.e. a subsidiary or a parent company). Therefore, members of venture issuers’ audit committees need not be independent as defined in NI 52-110. Note that an almost identical requirement is contained already in the TSX Venture Corporate Finance Manual.

IPO Prospectus Requirements

Pursuant to the proposed amendments, issuers who will qualify as “IPO venture issuers” under NI 41-101 (i.e., venture issuers) will be able to:

  1. present two-year audited financial statements in their IPO prospectuses instead of three year statements;
  2. include a description of their business over a two-year period instead of three years in their IPO prospectuses; and
  3. conform their IPO prospectus disclosure and ongoing requirements to the proposed amendments in NI 51-102 (continuous disclosure) and NI 52-110 (audit committees).


The proposed amendments represent an important step in the right direction and will reduce some of the difficulties experienced by smaller issuers who may have fewer resources than senior issuers to enable them to comply with some of the more stringent continuous disclosure obligations. We believe that some of the proposed amendments, such as the increase of the threshold to file a BAR, the removal of the requirement to prepare pro forma financial statements and the presentation of two-year audited financial statements in IPO prospectuses will generate positive responses in the capital markets.

However, some other amendments introduced by Proposed NI 51-103 could have been included in the proposed amendments. For example, the CSA have elected not to amend the definition of “venture issuer”. In contrast, Proposed NI 51-103 had introduced a new definition of “venture issuer” which, in addition to the stock exchanges that are included in the current definition, included issuers whose securities were listed and posted for trading on the NZAX Market of the New Zealand Stock Exchange, the Risk Capital Segment (Segmento de Capital de Riesgo) of the Bolsa de Valores de Lima, the NASDAQ OMX First North, and the Bolsa de Valores de Colombia.

Comment Period

The CSA are accepting comments on the proposed amendments until August 20, 2014.

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