Yesterday’s blog theme was bad news, and today we turn to less news. As we all anxiously await a proposal from the SEC addressing quarterly reporting, our northern neighbors have announced a voluntary pilot for semi-annual reporting that would exempt certain issuers from filing first- and third-quarter financial reports, including MD&A. This Torys alert explains the program in detail.

To be eligible for the reduced reporting, issuers must satisfy these conditions at the end of each three- and nine-month interim period:

– The issuer has been a reporting issuer in at least one jurisdiction of Canada for at least 12 months.
– The issuer is a “venture issuer”.
– The issuer has securities listed and posted for trading on the TSXV or the CSE.
– The issuer has revenue, as shown on its most recently filed annual audited financial statements, of no more than C$10 million.
– The issuer has filed all required periodic and timely disclosure documents with the regulator or securities regulatory authority in each jurisdiction in which it is a reporting issuer.
– During the preceding 12 months, the issuer (i) has not been the subject of penalties or sanctions (including a restriction on the use of any type of prospectus or exemption) imposed by a court relating to securities legislation or by a securities regulator (other than late filing fees); (ii) was not subject to a cease trade or similar order not revoked within 30 days of its issuance; and (iii) did not cease relying on the exemption provided by the Blanket Order.
– The issuer has issued and filed a news release specifying the initial interim period for which it does not intend to file an interim financial report and related MD&A in reliance on the Blanket Order, containing certain prescribed disclosure.

This part is key:

The SAR Pilot does not alter the disclosure required in connection with a prospectus offering or prospectus-level disclosure requirements in an information circular, takeover bid circular or an issuer bid circular. An issuer must cease relying on the exemptions in the Blanket Order if it has filed a base shelf prospectus and may not distribute securities under an existing shelf prospectus supplement.

I’m curious to see if an SEC proposal will be similarly limited in terms of eligible participants and offering disclosure requirements. I don’t know enough about the Canadian securities regime to know what these limitations will mean for semi-annual reporting adoption rates in Canada. But if U.S. registrants won’t be able to take advantage of semi-annual reporting when they need to raise capital (or even just have a shelf registration statement on file?), that’s going to really limit uptake since the smaller issuers (that might otherwise be the most likely adopters) frequently need to do just that. That said, if rulemaking changes the requirements for financial statements in registered offerings, wow. We’re in for an interesting few years as everyone wraps their heads around that and market practice evolves.

– Meredith Ervine