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Notice 2013-002 - CNSX - Issuer Guidance - Disclosure Obligations

May 10, 2013

On March 20, 2012, the OSC published the results of the Emerging Markets Issuer Review ("EMIR Report") in Staff Notice 51-719. OSC Staff conducted in-depth reviews of the disclosure records of selected issuers and examined the role of each selected issuer's board and audit committee. According to OSC Staff, material disclosure deficiencies were identified in more than 60% of the issuers. These disclosure deficiencies were addressed through restatements and refilings or enhancements to existing disclosure material.

OSC Staff followed up the EMIR Report with Staff Notice 51-720 - Issuer Guide for Companies Operating in Emerging Markets (the "Guide"). Importantly, the Guide does not propose the implementation of new regulations for issuers. Instead, the Guide highlights potential areas of risk, identifies key questions that directors and management should address and outlines the expectations of OSC Staff with respect to the existing disclosure regime for reporting issuers. 
We view the Guide and the EMIR Report as beneficial guidance to all issuers, not just those with operations in emerging markets.

CNSX Markets Approach

The primary focus of the initial and ongoing listing requirements of the Canadian National Stock Exchange (“CNSX”) is disclosure. Many of the disclosure deficiencies identified in the EMIR Report were addressed with corrective disclosure. We are supportive of any initiative to improve disclosure practices without the imposition of new regulation.Appropriate guidance and clear expectations about what constitutes meaningful disclosure reinforce the CNSX approach, that a disclosure-based regulatory model for listed companies can be effective with a limited number of prescriptive policies and exchange intervention on an exception basis. Our approach, therefore, to address the concerns about listed companies with operations in emerging markets is consistent with the principles on which all of our policies are based.

Areas of Concern

The Guide identifies eight areas of concern:

1. Business and operating environment
2. Language and cultural differences
3. Corporate structure
4. Related parties
5. Risk management and disclosure
6. Internal controls
7. Use of and reliance on experts
8. Oversight of the external auditor

A listed company with a governance structure that is appropriate to its circumstances will have identified and addressed these areas of concern. This will enable the issuer to provide adequate, meaningful disclosure as described in the Guide. Listed companies should review the Guide and their own approach to specific risks and tailor both their governance practices and disclosure to address the areas of concern identified in the Guide that are pertinent to them.

The Role of the Exchange

Stock exchanges perform a regulatory function to uphold the quality and integrity of capital market as a whole. To ensure that the regulatory requirements for listed companies are effective, exchange requirements provide a framework for consistent, standardized disclosure. Where such requirements and framework already exist in corporate or securities law and regulation, we do not believe it is appropriate to burden issuers with additional requirements that will not necessarily provide any measurable benefit to the investing public.

Following the lead of OSC Staff, CNSX Markets does not intend to introduce new requirements for listing applicants or listed companies. Instead, our listed companies and applicants are encouraged to closely adhere to the principles set out in the Guide to assist them in meeting their disclosure obligations under securities legislation and the CNSX Requirements.

Application of the Guidance

CNSX Form 2A – Listing Statement - is intended to mirror the disclosure requirements of a long form non-offering prospectus. Section 17 - Risk Factors - includes, in the first 2 sections, some of the common risks that should be described. Section 17.3 specifically addresses “any risk factors material to the Issuer that a reasonable investor would consider relevant to an investment in the securities being listed and that are not otherwise described under section 17.1 or 17.2.” For listing applicants with operations or significant interests in emerging markets, CNSX listings staff have been reviewing and will continue to review the Risk Disclosure section to ensure that the eight areas of concern have been addressed in the context of the guidance provided by OSC Staff in the Guide.

All CNSX listed companies are reminded that the Guide provides an excellent reference for any questions regarding continuous disclosure requirements, including disclosure in CNSX filings. CNSX Form 9 – Notice of Proposed Issuance of Listed Securities, and CNSX Form 10 – Notice of Proposed Transaction, for example, each include questions that relate to one or more of the eight areas of concern. A change related to any of these areas could be material information that requires immediate disclosure by news release.

For questions about CNSX filing or disclosure requirements, contact [email protected] or 416.572.2000 ext 2360.

Link to OSC Staff Notice 51-720 - Issuer Guide for Companies Operating in Emerging Markets.

Questions about this Notice may be directed to:

Mark Faulkner
Vice President – Listings & Regulation
[email protected] or 416.572.2000 x2305