The Canadian Securities Administrators (CSA) have published a Notice and Request for Comment proposing significant changes to strengthen the issuer bid, take-over bid, and beneficial ownership reporting regimes. This article focuses on proposed changes to the early warning system.

In particular, the proposed amendments include changes to certain early warning reporting triggers and thresholds, clarification of disclosure and timing requirements relating to acquirors’ plans or future intentions, and a requirement for soliciting securityholders to consider the application of the early warning system to their equity equivalent derivatives during a proxy solicitation.

1. Early Warning Reporting Triggers and Thresholds: The proposed amendments would amend or clarify aspects of the early warning system under National Instrument 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues and National Instrument 62-104 Take-Over Bids and Issuer Bids.
   The proposed amendments would:
   1. Require an early warning report to be filed by a person who beneficially owns, or exercises control or direction over, 10% or more of the outstanding voting or equity securities of a class of securities upon an issuer becoming a reporting issuer (but the associated news release requirement and moratorium provisions (i.e., restrictions on the timing of further purchases) would not apply);
   2. Deem securities held by joint actors collectively holding 10% or more of a class of outstanding voting or equity securities to be acquired or disposed of upon the formation or cessation, respectively, of a joint actor relationship, and rather than only when there is a purchase or sale of securities. However, reaching 20% or more in these circumstances would not constitute a “take-over bid” absent a  subsequent acquisition of securities by any joint actors;
   3. Clarify the triggers for subsequent reports under the early warning system and the alternative monthly reporting system, including following issuer actions and during the pendency of a non-exempt take-over bid or issuer bid;
   4. Permit eligible institutional investors not filing alternative monthly reports to enter or re-enter the alternative monthly reporting system; and
   5. Clarify how early warning reporting thresholds are to be calculated, including when securities are not convertible within 60 days and that ownership calculations may be made on a fully diluted basis in certain circumstances, such as for a subscription receipt offering or a fully backstopped rights offering.
2. Expanded Disclosure and Timing Requirements for Acquirors' Plans and Future Intentions: The proposed guidance will be included in National Policy 62-203 – Take-Over Bids and Issuer Bids to clarify disclosure and timing requirements relating to an acquiror’s or any joint actor’s plans or future intentions in the early warning report.
   Acquirors will be required to reassess and update disclosure regarding their plans or future intentions (and those of any joint actors) whenever an early warning reporting obligation is triggered.
   Updates should be made promptly upon any change in such plans or future intentions or if the acquiror or any joint actor has taken irrevocable steps toward a transaction, even if prior disclosure included general language contemplating a range of transactions. Individually or collectively, significant steps toward a transaction may constitute a reportable change in previously disclosed plans or intentions.
3. Enhanced Disclosure of Equity Equivalent Derivatives: The CSA has confirmed that that it is not appropriate to amend the early warning regime to require aggregation of beneficial ownership and economic interests in determining early warning reporting triggers, as is required in certain other jurisdictions.
   However, during a proxy solicitation, a soliciting securityholder and any joint actors may be deemed to have acquired, and to have, control or direction over, securities (including unissued securities) where they are a counterparty to an equity equivalent derivative. Therefore, early warning requirements may be triggered where their aggregate economic exposure is equivalent to 10% or more beneficial ownership.

Securityholders holding more than 10% of an issuer’s securities prior to the issuer becoming a reporting issuer will have to closely monitor the timing of that transition to determine if early warning reporting obligations are triggered. They will also have to assess any changes to their plans or intentions for the issuer and monitor the formation or cessation of their joint actor relationships, to determine if the relevant early reporting thresholds or triggers have been met. In addition, soliciting securityholders should be aware that during a proxy solicitation, economic exposure to derivatives may be treated as ownership.

We note that the other proposed amendments include: a new selective repurchase exemption for issuer bids; enhanced disclosure requirements relating to equity equivalent derivatives in specified circumstances under a formal take-over bid or proxy solicitation for which an information circular is required; and amendments to exemptions and the codification of common discretionary exemptions, for take-over bids and issuer bids. Comments on the proposed amendments, found here, are due to the CSA by 12 August 2026. For more information regarding the proposed amendments, please contact us.

Lauren Shligold, Summer Student, has contributed to this legal update.

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