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Letter Summary:
An at-the-market offering allows issuers to sell equity into the market on an exchange at the prevailing market price through registered dealers using a short form base shelf prospectus. Typically, an issuer will issue a notice to the dealer specifying items such as minimum acceptable pricing and execution timing. Currently, exemptive relief is required from the prospectus delivery and certain disclosure requirements to engage in these offerings. The proposed amendments would codify the relief frequently given from the requirement to physically deliver a prospectus and provide rights of withdrawal/ rights of action for non-delivery of the prospectus for equity ATM offerings. The CSA is exploring two options, one would impose a requirement that the securities be highly liquid or that the aggregate number of securities distributed on any trading day cannot exceed 25% of the trading volume of that class on that day. Second option would not impose a cap on the basis that issuers and underwriters are already incentivized not to conduct distributions that would have a material impact on market price.
Overview of the Council’s Comments:
The Council is generally supportive of the first option which would incorporate a liquidity requirement, however, if the intended outcome of an ATM offering is to create quicker and more cost effective access to capital, then a cap may not be required for larger, more experienced companies with an active market following and transparency with respect to the expected use of proceeds. Additionally, as we believe that it would be beneficial for companies with securities that are dually listed on a U.S. exchange to have ATM rules that are harmonized, to the extent possible, with those in the United States to reduce unnecessarily complexity; we do not believe either a daily cap based on trading volume or the general 10% cap should be placed on dual Canadian/ U.S. listed issuers.
For smaller issuers, a specific percentage cap would be preferable to excluding securities which meet the “highly liquid securities” definition.
We also noted that in the absence of a timely news release coinciding closer to the start of any share issuances under an ATM offering, investors may not fully appreciate or be able to easily track the timing, magnitude and circumstances in which an issuer would typically utilize the offering. While the issuer would have filed a base shelf prospectus and prospectus supplement (or, potentially, a “designated news release”) describing the ATM offering, investors may not be fully aware of the commencement and size of the distribution, and may be required to reconstruct any shares issuances made under an ATM long after the fact. In addition to considering specific additional news release or other public disclosure requirements, we believe that interim financial statements and other disclosure should continue to clearly note in the share tables any securities that were specifically issued under an ATM offering.