Recent Securities Law Developments. Mindy Gilbert Jim Reid Robin Upshall

Transcription

1 Recent Securities Law Developments Mindy Gilbert Jim Reid Robin Upshall May 11, 2017

2 Agenda 1. OSC Statement of Priorities Proxy Access: Coming to Canada? 3. Recent Developments in Majority Voting and Advance Notice 4. CSA Consultation Paper , Considerations for Reducing Regulatory Burden 5. Public Company Disclosure in the Age of Social Media 6. Revised TSX Proposals on Website and Executive Compensation Disclosure 2

3 OSC Statement of Priorities

4 Priorities Five main priorities: o Strong investor protection o Effective compliance, supervision and enforcement o Responsive regulation o Promotion of financial stability through effective oversight o Innovative, accountable and efficient organization Written submissions are due May 23,

5 Strong Investor Protection Investor-focused initiatives Publish regulatory proposals to create a best-interest standard of care for investment advisors Define regulatory actions required to address embedded commissions Provide access to an effective and fair dispute resolution system 5

6 Effective Compliance, Supervision and Enforcement Focus on new registrants, higher-risk firms and emerging risks Raise awareness of Whistleblower Program Reduce enforcement timelines by streamlining investigative and prosecution processes Create an active collection strategy 6

7 Responsive Regulation Reduce regulatory burden Focus on fintech (OSC LaunchPad, FAC) Actively assess impact of recent initiatives 7

8 Promote Financial Stability Through Effective Oversight Enhance systemic risk oversight through affiliations with international regulators Promote cybersecurity resilience 8

9 Innovative, Accountable and Efficient Become a more proactive and agile regulator Make greater use of technological tools to enhance ability to monitor and assess market activity Improve business capabilities to maintain a supportive and effective regulatory environment Work with CMRA on transition 9

10 Proxy Access: Coming to Canada?

11 Why Now? Earlier this year proxy access proposals were voted on by shareholders for the first time in Canada Boards of TD and RBC were asked to amend bylaws to permit shareholders to nominate directors Results were close: o TD proposal passed (52.2%) o RBC proposal failed (46.8%) Strong institutional support for both proposals 11

12 The Debate Framework A recurring governance issue in Canada and the U.S. An essential component of shareholder democracy and the right of shareholders to elect directors? OR Unnecessary in the Canadian context and an impediment to highly functional boards? 12

13 The Issues Some form of proxy access is appropriate But what are reasonable limits? oshareholders effective access to level playing field ocorporations can t be inundated with proposals And how best to implement? obylaws (U.S. approach) ostatute (Canadian approach) 13

14 Canadian Regime Most corporate statutes permit shareholder proposals to nominate directors (or requisition a meeting) 1% ownership for six months; 5% aggregate But rarely used due to limitations: oearly deadline oabsence of fair disclosure requirements omay not broadly solicit 14

15 U.S. Regime No statutory proxy access but widely supported Most large U.S. issuers have adopted a proxy access bylaw Generally Own in aggregate not less than 3% of shares Holding period of three years Up to 20 shareholders May nominate up to 20% of candidates Not available if intent to change control of board 15

16 Other Approaches Proposed OBCA amendments Ownership threshold of 3% Only one nominee per proposal CCGG 2015 Policy Paper 3% if market cap greater than $1 billion Broad solicitation permitted No minimum hold period 16

17 Next Steps for Issuers Importance of shareholder engagement Policy Disclosure Are significant shareholders satisfied with the board s composition? May just be a solution in search of a problem Or may be a real issue better addressed proactively 17

18 Recent Developments in Majority Voting and Advance Notice

19 Majority Voting Requirements TSX requires that listed issuers have a majority voting policy TSX Staff Notice published March 9, 2017 Staff canvassed 200 majority voting policies Staff concerned with non-compliance 19

20 Requirement to Resign TSX requires a director who has not received majority approval to tender resignation immediately TSX noted plans state that directors expected to resign 20

21 Acceptance of Resignation TSX requires that the board must determine whether to accept resignation within 90 days Resignation must be accepted absent exceptional circumstances 21

22 Circumventing TSX Majority Voting Policy A director who tenders resignation cannot participate in meetings Press release announcing determination must be provided to the TSX Non-compliant policies should be amended prior to next shareholder meeting 22

23 CBCA Majority Voting Proposal Requires majority voting for distributing corporations Board would lose discretion provided by TSX rule Prohibits appointment of a nominee who failed to be elected by majority unless o issuer would not have minimum number of directors o Canadian residency requirement would not be satisfied 23

24 OBCA Majority Voting Proposal Amendments would implement majority voting for every corporation Does not explicitly prohibit appointing director who has failed to receive majority approval 24

25 Advance Notice Bylaws Addressed in TSX Staff Notice TSX acknowledges validity of advance notice bylaws TSX supports Glass Lewis & Co. and ISS advance notice policies for Canada 25

26 TSX Views on Advance Notice Bylaws Advance notice bylaw should not require o presence of nominating shareholder at meeting o unduly burdensome disclosure o Form 4 Personal Information Form o questionnaire, representations or consent Board should have discretion to waive any provision of the advance notice bylaw 26

27 CSA Consultation Paper , Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers

28 Overview Broad list of potential options to reduce regulatory burden Seeking specific feedback on options Comments due July 7,

29 Main Focus Extend application of streamlined rules Reduce regulatory burden of prospectus rules and process Reduce ongoing disclosure requirements Eliminate overlap in requirements Enhance electronic delivery 29

30 Extend Streamlined Rules Current distinction between venture and nonventure issuers o o o Longer filing deadlines Higher BAR thresholds No AIF Should distinction be based on a different metric revenues or market cap? Is a change necessary? 30

31 Prospectus and Offering Process Reduce number of years of audited financial statements for IPOs Streamline other requirements: o o o o Increase thresholds for BARs Remove pro forma requirements Remove auditor review requirements for interim financials Tailor disclosure requirements for non-ipo prospectuses Re-examine short form eligibility Liberalize the pre-marketing rules? 31

32 Prospectus Regime Alternatives Integrated Disclosure System (CSA 2000): o o Model more closely linked to continuous disclosure More comprehensive timely disclosure and abbreviated offering document Continuous Market Access (BCSC 2002): o o Enhanced continuous disclosure No offering document Alternative Model: o o Limit disclosure to relevant items concerning the offering and the offered securities Assume liability for misrepresentations in public disclosure 32

33 Reduce Disclosure Requirements Remove or modify BAR criteria o o Is the disclosure meaningful to investors? Are the significant tests appropriate? Others? Thresholds? Industry specific tests? Semi-annual reporting o o Provide the option to issuers or limit to smaller issuers Quarterly highlights instead of MD&A? Annual and interim filings o Reduce information included? Overly burdensome MD&A? 33

34 Enhance Electronic Delivery Is notice and access working? Is notice/consent necessary? Are there other ways electronic delivery methods can be further enhanced through securities legislation? 34

35 Considerations Always a benefit to consider options Reducing cost is important Investor expectations both local and foreign Competitive advantages Which are priorities? 35

36 Public Company Disclosure in the Age of Social Media

37 Regulatory Review Regulatory authorities reviewed social media practices of 111 Canadian public companies Of the 72% using social media, 30% used it in a way that raised securities law concerns Most involved disclosure inconsistencies Four instances of materially deficient disclosure where the share price moved an average of 26% 37

38 Specific Concerns Selective or early disclosure Misleading and unbalanced disclosure Insufficient governance 38

39 Rules and Guidance National Policy , Disclosure Standards National Instrument , Continuous Disclosure Obligations TSX Company Manual and Electronic Disclosure Guidelines Rules of general application as contrasted with more detailed U.S. regime under Reg FD 39

40 Cautionary Tale In 2012 the CEO of Netflix posted on Facebook that June viewing had exceeded one billion hours Netflix shares rose 5.2% that day SEC issued a Wells Notice indicating its view of sufficient wrongdoing to warrant civil claims Material information must be made available to investors simultaneously 40

41 Best Practices for Issuers An opportunity to review policies and practices Adopt a social media policy Type of information and timing of release Disclosure review Forward-looking information Linking to third-party materials 41

42 Revised TSX Proposals on Website and Executive Compensation Disclosure

43 Revised Website Disclosure Proposal Listed issuers would be required to post on their website: o Constating documents o Majority voting policy o Advance notice policy o Position descriptions for chair of the board, lead director and key officers o Board mandate o Board committee charters 43

44 Executive Compensation Disclosure Amendments Abandoned most proposed amendments to executive compensation disclosure Maintained annual burn rate calculation, but modified the method of calculation Securities granted during the applicable fiscal year Weighted average number of securities outstanding for the applicable fiscal year 44