The Canadian Forum for Financial Markets (CFFiM)/Forum Canadien des Marchés Financiers (FCMFi) has proposed amending the rules for marketing Canada’s public offerings, highlighting two specific key areas.
Pre-marketing exemptions
The forum focused on pre-marketing exemptions rules involving the testing the waters exemptions and bought deals. It recommended expanding the testing the waters exemptions to permit confidential solicitations of interest for all types of prospectus offerings, as well as eliminating certain restrictions in the exemption. It also suggested greenlighting a drop in the number and price of securities to be purchased.
The CFFiM said that testing the waters drives capital formation and bolsters investor opportunities but pointed out that Canadian rules are more inflexible than US ones.
“Current Canadian rules have the effect of limiting “soft sounding” efforts for offerings off an existing shelf prospectus. Soft sounding benefits investors and issuers by helping with better pricing and timing. It helps issuers evaluate markets conditions and demand quietly to improve the price stability and efficiency of the offer, while avoiding repetitive regulatory filings,” the CFFiM said in a media release. “It is a low pressure, consultative, educational approach within the flexible, staged capital raising process afforded by a shelf prospectus.”
The forum added that bought deals should be accommodated further given that they accelerate and reduce risk in capital raising. The forum said such deals are viewed as advantageous to the country’s capital markets.
Marketing requirements
The CFFiM suggested the following changes to marketing rules:
- Amending the “all information” disclosure requirement
- Expanding exceptions beyond comparables
- Expanding the allowed content of standard term sheet
- Exempting bona fide offshore marketing activities
- Excepting the general disclosure of material changes or facts
- Modifying the cross-border roadshows exception
“The requirement that the underwriters have ‘a reasonable expectation’ that an offering will be sold ‘primarily’ in the US is too vague to be useful and may be too high a threshold,” the CFFiM said. “It is often impractical for underwriters to estimate approximately how much of a cross- border offering will be ‘sold’ in or outside of Canada at the time at which a determination must be made as to the availability of the cross-border exemption.”
The forum added that underwriters may verify that there is a “bona fide intention” to divest the offering mainly outside of Canada.