In Canada, any person that acquires a stake of 10% or more in a Canadian public company must issue a news release immediately and file an “early warning” report within two business days, including the number of shares held, the purpose of the transaction and the acquirer’s future intentions. This allows the market to review and assess the potential impact of changes in ownership or control.

The Canadian Securities Administrators (CSA) proposed to reduce the early warning reporting threshold from 10% to 5%. The IIAC pushed back, stressing the lower threshold would increase compliance costs and reduce access to capital for small and mid-cap companies, and reduce market liquidity as institutional investors restrict investments in smaller companies to avoid triggering the new lower 5% threshold. The CSA has now agreed to keep the reporting threshold at 10% for all issuers and investors.

In addition, the CSA withdrew its proposal to include “equity equivalent derivatives” for the purposes of determining whether an early warning reporting obligation is triggered. The IIAC argued derivatives are not used to accumulate a control position in a firm. Rather, investors use derivatives for risk management purposes or as part of a trading strategy.

The IIAC also argued borrowed securities, in the context of short selling, should be exempt for the purpose of determining the early warning reporting threshold trigger. The CSA acknowledged that short selling activities are generally undertaken for commercial or investment purposes, and not with a view to influence voting, and it introduced a new exemption for borrowers from the early warning reporting threshold trigger, as long as borrowed securities are disposed of within three business days.