CSA seeks changes to buyback, takeover rules

In an effort to enhance liquidity, Canadian securities regulators are proposing to introduce a new exemption that will make it easier for companies to buy back shares — and they’re also seeking to enhance disclosure in connection with potential takeover bids. 

The Canadian Securities Administrators (CSA) is seeking comment on a series of proposed rule changes — including the introduction of a new issuer bid exemption, while also beefing up disclosure requirements around certain derivatives and making other proposed changes to the requirements around issuer bids, takeover bids and beneficial ownership reporting.

Overall, the proposals “are intended to provide issuers with greater flexibility to repurchase their own securities, enhance transparency of ownership of derivative interests in specified circumstances, and reduce regulatory burden and enhance the integrity of the issuer bid, takeover bid and early warning reporting regimes,” the CSA said in a notice.

In particular, the regulators proposed an exemption that will allow issuers to buy back up to 5% of their shares over a 12-month period, from a limited number of shareholders, subject to certain restrictions.

“Recently, we have observed increased interest in selective repurchases,” the CSA noted — adding that the Canadian issuer bid regime has been criticized as “overly restrictive,” particularly compared to the U.S. approach to selective repurchases.

At the same time, the CSA is also proposing to require enhanced disclosure of certain derivatives that effectively mimic equity holdings (such as total return swaps and contracts for difference), along with other arrangements that alter an issuer’s exposure to take-over bids and proxy solicitations. 

Currently, insiders are required to report their aggregate economic positions, but there’s no similar requirement for prospective bidders, the CSA noted.

“Based on our review, we think that disclosure of bidders’ and soliciting securityholders’ aggregate economic positions in the context of take-over bids and proxy solicitations … will support confidence in our capital markets by providing more balanced transparency of the totality of parties’ interests in special circumstances,” the notice said.

The regulators are also proposing new guidance on when the use and disclosure of derivatives can raise concerns with regulators.

For instance, in a recent decision, a panel of the Alberta Securities Commission (ASC) ruled that, while a bidder complied with the existing disclosure requirements in an unsolicited takeover bid, its use of total return swaps “was clearly abusive of both the capital markets and the target’s securityholders.”

The proposals also include a variety of other proposed rule changes.

“The proposed amendments and changes are intended to provide issuers with greater flexibility to repurchase their own securities, enhance transparency of ownership of derivative interests in specified circumstances, and reduce regulatory burden,” said Stan Magidson, chair of the CSA, and chair and CEO of the ASC, in a release. 

“These changes aim to enhance the integrity of the issuer bid, take-over bid, and early warning reporting regimes through clarifying amendments and supplemental policy guidance,” he added.

The proposals are out for a 90-day comment period, which ends Aug. 12.