Canadian early warning system exempts sec lending
29 February 2016 Toronto
Image: Shutterstock
Securities lending transactions have been exempted from changes to Canada’s early warning system in certain circumstances, the Canadian Securities Administrators (CSA) has confirmed.
The CSA, an umbrella organisation of Canada’s provincial and territorial securities regulators, issued its final changes to the country’s early warning system for securities reporting on 25 February. They will go into effect on 9 May.
Under the early warning system, the acquisition of 10 percent or more of a company’s shares has to be announced through a press release and then reported to the relevant regulator within two business days.
The CSA had been considering reducing that to 5 percent, bringing Canada in line with the US, but that proposal was dropped in favour of disclosures after a 2 percent decrease in ownership or when falling below the 10 percent threshold.
For securities lending transactions, lenders will be exempt from the early warning trigger for securities lent or transferred pursuant to a “specified securities lending arrangement”, according to law firm Stikeman Elliott.
The arrangement must include an unrestricted ability to recall the securities before a meeting of shareholders or a requirement that the borrower votes as instructed by the lender.
Going beyond the original proposal, the CSA has also introduced a new exemption from the reporting trigger for borrowers in connection with certain short sales, according to Stikeman Elliott.
The law firm explained in a client note: “This exemption can be relied upon where, in connection with a securities lending arrangement, the borrowed securities are disposed of by the borrower within three business days, the borrower will later acquire those or identical securities and transfer or return them to the lender and that the borrower does not intend to, and does not, vote the securities during the relevant period.”
“Notwithstanding these exemptions from the reporting trigger, securities lending arrangements in effect at the time of a reportable transaction will be required to be disclosed in an early warning report even if the transaction triggering the report did not involve such arrangement.”
The CSA, an umbrella organisation of Canada’s provincial and territorial securities regulators, issued its final changes to the country’s early warning system for securities reporting on 25 February. They will go into effect on 9 May.
Under the early warning system, the acquisition of 10 percent or more of a company’s shares has to be announced through a press release and then reported to the relevant regulator within two business days.
The CSA had been considering reducing that to 5 percent, bringing Canada in line with the US, but that proposal was dropped in favour of disclosures after a 2 percent decrease in ownership or when falling below the 10 percent threshold.
For securities lending transactions, lenders will be exempt from the early warning trigger for securities lent or transferred pursuant to a “specified securities lending arrangement”, according to law firm Stikeman Elliott.
The arrangement must include an unrestricted ability to recall the securities before a meeting of shareholders or a requirement that the borrower votes as instructed by the lender.
Going beyond the original proposal, the CSA has also introduced a new exemption from the reporting trigger for borrowers in connection with certain short sales, according to Stikeman Elliott.
The law firm explained in a client note: “This exemption can be relied upon where, in connection with a securities lending arrangement, the borrowed securities are disposed of by the borrower within three business days, the borrower will later acquire those or identical securities and transfer or return them to the lender and that the borrower does not intend to, and does not, vote the securities during the relevant period.”
“Notwithstanding these exemptions from the reporting trigger, securities lending arrangements in effect at the time of a reportable transaction will be required to be disclosed in an early warning report even if the transaction triggering the report did not involve such arrangement.”
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