Earlier this year, the Canadian Securities Administrators (CSA) published for comment proposed amendments that are designed to streamline disclosure requirements for TSX Venture Exchange (TSX‐V) issuers so they can focus more on the growth of their businesses and disclosure on information that reflects the needs and expectations of shareholders and eliminates disclosure that may be less valuable to investors. The CSA’s earlier proposal to create a comprehensive, stand‐alone regulatory regime for TSX‐V issuers was abandoned in 2013. While the CSA have retained some of the disclosure‐related elements of the previous proposals, the new amendments proposed are intended to make targeted changes to existing rules.

The proposals address continuous disclosure and governance obligations, as well as disclosure for prospectus offerings. In particular, the proposed amendments would:

  • allow the requirement for management’s discussion and analysis (MD&A) for interim financial periods to be satisfied by a streamlined and highly focused report on quarterly highlights, if the TSX‐V issuer does not have significant revenue;
  • implement a new tailored form of executive compensation disclosure;
  • reduce the instances in which a business acquisition report must be filed;
  • create a new requirement for audit committees to have a majority of independent members; and
  • amend the prospectus disclosure requirements to reduce the number of years of audited financial statements required for TSX‐V issuers becoming reporting issuers and to conform the prospectus disclosure requirements to the proposed amendments related to continuous disclosure.

TSX‐V Issuer Amendments

MD&A Requirements

The CSA propose to permit TSX‐V issuers without significant revenue to prepare and file a streamlined quarterly disclosure document, referred to as “quarterly highlights”, in the place of quarterly interim MD&A, for the first three quarters of an issuer’s fiscal year. Quarterly highlights would consist of a short discussion regarding the issuer’s operations and liquidity including known trends, demands, major operating statistics and changes related thereto, commitments, events, expected or unexpected, or uncertainties that have materially affected operations and liquidity in the quarter or are reasonably likely to have a material effect going forward. When assessing whether an issuer has significant revenue in a financial year, a TSX‐V issuer is to consider only the actual total revenue reported in its annual financial statements.

Executive Compensation Disclosure

The proposed amendments would allow TSX‐V Issuers to comply with either (i) the existing executive compensation disclosure requirements under Form 51‐102F6 – Statement of Executive Compensation; or (ii) a new proposed executive compensation form specific to TSX‐V issuers (proposed Form 51‐ 102F6V) that would have the effect of streamlining disclosure to a certain extent as follows:

  • (a) streamlines the disclosure with respect to compensation governance and compensation discussion and analysis to include information that is more tailored to the reality of TSX‐V issuers;
  • (b) reduces the number of executive officers for whom compensation disclosure must be included to (i) the Chief Executive Officer; (ii) Chief Financial Officer; and (iii) the other one (reduced from three) most highly compensated individual whose total compensation exceed $150,000 for the applicable fiscal period;
  • (c) reduces the number of years for which information on executive compensation must be presented from three to two years, but increases the period of director compensation information from one to two years;
  • (d) simplifies information with respect to compensation securities (e.g. incentive stock options) issued or granted to the executive officers and directors;
  • (e) includes information about the exercise by executive officers and directors of compensation securities;
  • (f) includes a description of the material terms of any agreement or arrangement under which compensation was provided to an executive officer or director as opposed to only those agreements and arrangements that provide for payments in connection with a resignation, termination, retirement, change of control of the issuer or in the individual’s responsibilities; and
  • (g) includes a description of the material terms of the TSX‐V issuers’ incentive stock option plan or other type of compensation plan. Of note, the proposed amendments also establish a fixed deadline for filing executive compensation disclosure, which, if approved, will either be 140 or 180 days for TSX‐V issuers. Those TSX‐V issuers whose applicable corporate law and con stating documents permit their annual meeting of shareholders to be held later than such deadline, could theoretically result in a TSX‐V issuer having to file its executive compensation disclosure twice: once in stand‐alone form to meet the foregoing deadline and again within its management information circular filed in connection with its annual meeting of shareholders.

Business Acquisition Reports

Currently all issuers are required to file a Business Acquisition Report (BAR) within 75 days of a significant acquisition, including audited financial statements of the acquired business for the most recent financial year and pro‐forma financial statements of the issuer. The proposed amendments increase the significance threshold for TSX‐V issuers by raising each of the asset test and investment test thresholds from 40% of the consolidated assets of the TSX‐V issuer (calculated using the most recent interim or annual financial statements of the TSX‐V issuer) to 100%, thereby reducing the instances where BARs are required.

The CSA is also proposing to eliminate the requirement that BARs filed by TSX‐V issuers must include pro‐forma financial statements.

Audit Committee Information

The proposed amendments would require TSX‐V issuers to have an audit committee consisting of a minimum of three members, the majority of whom are independent. Almost identical requirements are already contained in the TSX‐V Corporate Finance Manual and so these particular amendments are unlikely to affect TSX‐V listed issuers.

IPO Prospectus Requirements

The proposed continuous disclosure amendments would conform to the prospectus requirements for TSX‐V issuers as follows:

  • (a) presentation of two‐year (instead of three) audited financial statements in an initial public offering (IPO) prospectus;
  • (b) inclusion of a description of the issuers’ business over a two‐year (instead of three) period in an IPO prospectus; and
  • (c) conforming of IPO prospectus disclosure and ongoing requirements to the proposed amendments in National Instrument 51‐102 – Continuous Disclosure Obligations and National Instrument 52‐110 – Audit Committees.