Greater Flexibility for Reporting Issuers: Access Equals Delivery

January 17, 2024

Written By Bruce A. Hibbard, Andrew N. Disipio and Jason Wang

As an update to our blog post dated April 19, 2022, on January 11, 2024, the Canadian Securities Administration (CSA) published amendments implementing an "Access Equals Delivery" model (AED Model) to generally permit electronic delivery of prospectuses in Canada for non-investment fund reporting issuers, including venture issuers. The AED Model will come into force on April 16, 2024, subject to receiving expected regulatory and ministerial approvals.

Before the proposed amendments, Canadian securities legislation required reporting issuers to physically deliver prospectuses to investors. Many issuers incurred significant costs for printing and mailing the documents required to be delivered under Canadian securities laws. The AED Model will allow issuers to save on costs while allowing investors to quickly access information electronically, in an environmentally-friendly manner.

Instead of requiring delivery of a physical, paper copy of a prospectus to investors, the AED Model allows (but does not require) reporting issuers to satisfy their delivery requirements by:

• providing the public with electronic access to the prospectus and alerting investors through a news release that the prospectus is accessible through SEDAR+; and
• in all cases, delivery of a prospectus will occur, or conditions will be met, when the prospectus is filed on SEDAR+ and, where applicable, a news release is issued and filed on SEDAR+ indicating that the prospectus is available electronically on SEDAR+.

The CSA has removed the two-day time limit within which a reporting issuer, underwriter or agent must send a physical, paper copy of a preliminary prospectus if requested by a prospective purchaser, as the CSA determined that no time-sensitive action is tied to the receipt of a physical, paper copy of a preliminary prospectus on the part of a potential investor.

Under the AED Model, a purchase may continue to exercise withdrawal rights within two business days after the later of: (1) the date of access to the final prospectus or any amendment has been provided, and (2) the date the purchaser entered into the agreement to acquire the securities.

The AED Model is not available for rights offerings, medium-term note offerings and other continuous distributions under a shelf prospectus. The CSA has noted that the AED Model is not well suited for these types of distributions. The AED Model is also not currently available for investment fund issuers.

Notably, the CSA is further considering enhancing the AED Model for wider adoption to include investment fund issuers and for other continuous disclosure documents such as financial statements and proxy-related materials, but is still receiving feedback on how to do so.

Purpose of the AED Model

The AED Model is intended to provide investors with electronic access to preliminary and final prospectuses in order to modernize the delivery procedure by eliminating, in certain circumstances, the requirement to deliver physical, paper copies to investors. The proposed amendments are informed by the general view that investors do not wait for, nor rely upon, paper delivery of a prospectus to inform their investment decisions. The AED Model is consistent with the general evolution of the Canadian capital markets towards electronic disclosure. The AED Model has previously been a feature of the U.S. capital markets, allowing cost savings benefits to issuers, underwriters and agents.

The AED Model is not mandatory for reporting issuers. Prospective purchasers will, despite the adoption of the AED Model and use of such model by issuers, still have the ability to request a physical, paper copy of the preliminary or final prospectus in electronic or physical, paper form from the reporting issuer.

Potential Shortcomings

Despite the benefits of the AED Model, certain shortcomings have been identified. For example, the AED Model requires investors to take action to access SEDAR+ rather than have the prospectus sent directly to them. This shifts the onus to investors to access the prospectus, rather than being on the reporting issuer to deliver such prospectus. Further, the AED Model creates forced reliance on SEDAR+ as a tool for accessing important offering documents.

Practical Applications and Benefits

Anecdotally, investor advocates have previously resisted the change to an AED Model citing a concern with increased shareholder disenfranchisement caused by the AED Model leading to a reduction in shareholder engagement and failing to provide meaningful notice of the electronic filings. However, the AED Model brings Canada in line with the current rules and practices of other major securities markets, such as the United States, and recognizes the continuing evolution towards the consumption of information electronically. From a reporting issuer's perspective, the AED Model reduces costs and regulatory burden and is more environmentally-friendly (despite some physical printing and delivery of materials still being required to comply with the reporting issuer's applicable corporate law requirements). From an investor's perspective, the AED Model provides timely and efficient access to information through SEDAR+ while still allowing for the distribution of paper copies of prospectuses for investors who desire them.

For further details, please see the CSA Notice for the amendments.

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