Publication of research reports during distributions

9 minute read
01 August 2015

On August 25, 2015, the participating provinces and territory in the Cooperative Capital Markets Regulatory System achieved an important milestone towards implementation of the system by publishing a revised consultation draft of the uniform provincial and territorial capital markets act (now known as the Capital Markets Act), along with the drafts of the initial regulations proposed for adoption by the participating provinces and territory under the draft uniform act. These materials have been published for a 120-day public comment period.

This article is part of Gowlings' Guide to the Proposed Initial Regulations and related materials. In this segment of our guide, we discuss the proposed initial regulations relating to the publication of research reports during distributions of an issuer's securities. You can view other sections of the guide here..


The participating provinces and territories are proposing to provide exemptions from the prospectus requirement under the draft uniform act to permit certain dealer communications relating to an issuer during a distribution of an issuer's securities. These are set out in section 6 of CMRA Regulation 41-501 Prospectus Requirement and Exemptions and are based on Part 4 of OSC Rule 48-501 Trading During Distributions, Formal Bids and Share Exchange Transactions. The adoption of the exemptions will represent a change in British Columbia.


Under section 6 of CMRA Regulation 41-501:

Compilations and Industry Research ― A person falling within the category of "dealer-restricted person" may, despite the prospectus requirement, publish or disseminate any information, opinion or recommendation relating to the issuer of a "restricted security", provided that it is:

  1. contained in a publication that (i) is disseminated with reasonable regularity in the normal course of business of the dealer-restricted person, and (ii) includes similar information with respect to a substantial number of companies in the issuer's industry or a comprehensive list of securities recommended by the dealer-restricted person; and
  2. given no materially greater space or prominence in the publication than that given to other securities or issuers.

Issuers of highly-liquid securities ― A dealer-restricted person may, despite the prospectus requirement, publish or disseminate any information, opinion or recommendation relating to the issuer of a restricted security that is a "highly-liquid security", provided it is contained in a publication that is disseminated with reasonable regularity in the normal course of business of the dealer-restricted person.

For the definitions of "dealer-restricted person", "restricted security" and "highly-liquid security", see note (1) below.

Rationale behind Part 4 of OSC Rule 48-501

The prospectus exemptions under Part 4 of OSC Rule 48-501 are needed as advertising or marketing activities directly or indirectly in furtherance of a distribution of securities, including research reports, are subject to the prospectus requirement. Although the exemptions will be new for British Columbia, section 6 of CMRA Regulation 41-501 will minimize disruption for dealers in Ontario that have been relying on the exemptions when they distribute research reports about an issuer during a distribution of that issuer's securities.

How does section 6 of CMRA Regulation 41-501 differ from OSC Rule 48-501?

Section 6 of CMRA Regulation 41-501 adopts Part 4 of OSC Rule 48-501, largely, in its current form as of March 2, 2015. There are no noteworthy changes that have been proposed.

Much of the balance of OSC Rule 48-501 (including, for example, trading restrictions imposed on dealers in the distribution of restricted securities) is now reflected in the Universal Market Integrity Rules of IIROC and is therefore not proposed to be carried forward.

What are the implications for British Columbia?

Liberalizing the research rules across the participating provinces and territories to allow research reports to be published during a distribution of restricted securities could serve useful to increase the information that is available to clients. However, the exemption will only permit research (other than relating to a highly-liquid security) in the form of compilation reports providing similar coverage in respect of a significant number of other issuers. As some commentators noted when OSC Rule 48-501 was published for comment, this could limit the content of the report to investors, making it difficult for dealers to respond to client inquiries and hindering the ability of the client to make an informed decision.


If you would like to discuss these regulations and how they will apply to your business, or if you wish to be added to our email distribution list for related publications, please contact Tal Cyngiser* or any of the following lawyers:

*Tal Cyngiser, an Associate in our Toronto office, was seconded to the Canadian Securities Transition Office (CSTO) for over a year, working extensively with the participating provinces and their securities commissions on the drafts of the initial regulations.

To view our full guide, click here.

(1) "dealer-restricted person" includes:

(a) a dealer that:

(i) is an underwriter in a prospectus offering or a restricted private placement;

(ii) is participating in a restricted private placement as agent and has been allotted to sell more than 25% of the securities to be issued under the restricted private placement;

(iii) is the dealer-manager, manager, soliciting dealer or adviser appointed by an offeror in respect of a securities exchange take-over bid or issuer bid, or

(iv) is appointed by the an issuer to be the soliciting dealer or adviser in connection with amalgamations, arrangements, capital reorganizations or similar transactions;

(b) related entities of any person or company referred to above, unless there are written policies and procedures in place designed to prevent information flow between related entities and the operations of such policies and procedures is assessed annually, the dealer has no officers or employees that solicit orders or recommend transactions in securities in common with the related entity and the related entity does not act as a market maker for the restricted security, solicit orders from clients or enter principal orders or otherwise engage in proprietary trading;

(c) partners, directors, officers or employees of dealers or related entities; or

(d) any person or company acting jointly or in concert with a person referred to above for a particular transaction.

"restricted security" includes, generally, any security being offered by way of a prospectus or restricted private placement, or by an offeror in a take-over bid, or issuable to security holders pursuant to an amalgamation, arrangement, capital reorganization or similar transaction. A restricted security also includes a security into which any of the foregoing securities is convertible or that may be convertible into a restricted security.

"highly-liquid security" means a listed security that trades during a 60-day period an average of at least 100 times per trading day with an average trading value of $1 million per trading day, or a listed security that is subject to Regulation M under the Securities Exchange Act of 1934 as an "actively-traded security".

"restricted private placement" means a distribution of offered securities made pursuant to sections 2.3 or 2.30 of National Instrument 45-106 Prospectus Exemptions.

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