The Canadian Securities Administrators, an umbrella group for all provincial securities commissions, will release a proposed new rule in February that will require shareholders to publicly disclose their ownership stakes in a company when it reaches 5 per cent, according to sources familiar with the new standard.Chris Young/The Canadian Press
Canada's securities regulators are preparing to unveil new rules that will make it easier for companies to find out when investors are accumulating large positions in their shares.
The Canadian Securities Administrators, an umbrella group for all provincial securities commissions, will release a proposed new rule in February that will require shareholders to publicly disclose their ownership stakes in a company when it reaches 5 per cent, according to sources familiar with the new standard.
The current standard is 10 per cent. Companies have lobbied for the threshold to be lowered to the same 5-per-cent level used in the United States.
They say it would give them earlier warning when investors are accumulating shares in advance of a takeover bid, and would also make it easier to identify and communicate with large shareholders about other company issues.
Yvette Lokker, chief executive officer of the Canadian Investor Relations Institute (CIRI), which represents publicly traded companies, said it is extremely difficult for companies to know who their shareholders are below the 10-per-cent reporting threshold.
Some large firms hire proxy companies to do market trading surveillance to track their ownership, but she said small and mid-sized firms do not have the money for that. She said a threshold of 5 per cent would "foster good governance" by making communication easier.
CIRI has sent a submission to regulators also asking for rules to be changed so that shareholders have to disclose when they are selling shares and their ownership is falling. Current rules only require disclosure when ownership levels are climbing.
"They may exit completely, and you don't know," she said. "It really makes it hard to understand who your shareholders are in this system."
Most major countries around the world have a 5-per-cent reporting standard, including the U.S., France and Germany. Britain requires ownership to be disclosed at 3 per cent. An academic review of rules in 25 countries found only six with thresholds above 5 per cent, including Russia, Pakistan and Latvia.
Shareholders, however, have been mostly sitting out the debate. The Canadian Coalition for Good Governance, which represents Canada's largest institutional shareholders, sent a letter to regulators saying they should consider the "potential ramifications in light of the unique features of the Canadian marketplace" and should seek market input before making any changes.
CCGG executive director Stephen Erlichman said he could not comment on the proposed CSA changes until he sees the details of the proposals.
He said many of the CCGG's members want to see how regulators will deal with so-called "passive" investors like mutual funds, which are allowed report ownership changes monthly instead of within 10 days.
CIRI has also called on regulators to change the rules around reporting incremental increases in share ownership.
Investors who breach the 10-per-cent threshold have to tell the market every time their ownership increases a further two percentage points. CIRI has asked regulators to tighten that, requiring new disclosure with every one percentage point increase above 5 per cent.
One source familiar with the proposed new rule said it is unlikely regulators will adopt the 1-per-cent standard, and will likely stick with requiring new disclosure at 2-per-cent increments.
Janet McFarland