Canadian Lawyer

w w w . C A N A D I A N L a w y e r m a g . c o m J U L Y 2 0 1 7 15 What put the Mobius strip in my mind (I don't need prompting to think about fast food) is the recent consultation paper (51- 404) published by the Canadian Securities Administrators identifying areas of secu- rities regulation that could benefit from a reduction of undue regulatory burden. Specifically, though the analysis focuses on securities regulation generally, taking into account changing market conditions, investor demographics, technological innovation and globalization, among other things, many of the proposals predictably contemplate reducing the regulatory bur- den for smaller enterprises, which are often the types of issuers that we're conditioned to believe are riskier for investors. At a high level, proposals of this nature make abundant sense. It is challenging to argue that facilitating capital forma- tion for earlier-stage enterprises, removing unwarranted regulatory costs and taking into consideration the evolving character- istics of the marketplace in general is not worthwhile. However, to torture my earlier analogy a bit, these types of earlier-stage companies can sometimes be the fast-food salad with appealing characteristics but hidden calories. The proposed reforms fall into five cat- egories. The first extends the scope of rules that streamline disclosure requirements for "venture issuers" (issuers that do not have securities listed on senior stock exchanges such as the TSX); for example, permitting longer filing deadlines for financial state- ments, fixing higher thresholds for signifi- cant acquisition reporting and eliminating some requirements (such as the annual information form) entirely. The less oner- ous requirements would instead be applied to those issuers that fall below size-based criteria (based on market cap or issuer rev- enue, for example). The second category focuses on the offering process; the proposals range from reductions in the required disclosures (e.g., fewer years of audited financials and streamlining of disclosure requirements generally) to more dramatic reforms such as alternative prospectus models and rules that better facilitate straightforward at-the- market continuous offerings. The other categories are in a similar vein. The third contemplates narrowing of various ongoing disclosure require- ments, such as removing or narrowing the requirement for detailed business acquisi- tion reporting, removing repetitive disclo- sure line items and considering permitting semi-annual (instead of quarterly) report- ing for all, or possibly just smaller, issuers. The fourth concerns the elimination of overlapping regulatory requirements, and the fifth focuses on new paths to better permit electronic delivery of materials. Many of these proposals are not new but are restatements or refinements of a (properly) continuing process of weigh- ing the costs and benefits of securities regulatory requirements. Viewed from a distance, there is a consistent cyclicality to the process. The natural reaction to pub- lic issuer failures is to enhance disclosure requirements (since the entire framework is predicated on enhancing transparency so that market participants can properly evaluate investment alternatives); bad out- comes often result in initiatives requiring additional process and disclosure to avoid recurrence. Then, after the market lives with the new requirements for a time, and as other factors (such as technology and the characteristics of the market) evolve, a cost- benefit analysis is undertaken. In this way, this cyclical pattern that can seem (again, like the Mobius strip) to be endless is actually a natural evolution- ary process. There was a time when a guy named Mobius twisted a piece of paper and became forever remembered by elemen- tary school teachers and corporate law columnists. In contemporary times, the process is more iterative and Darwinian. More specifically, there is logic to reduced requirements for smaller issuers. At the offering stage, relaxation of require- ments for smaller issuers has often been accompanied by requirements for starker warnings, so that investors acquiring risk- ier securities were informed bluntly about the risks, like the newly required calorie disclosure for chain restaurants. The anal- ogy falls down, though, when you consider streamlining of the continuous disclosure requirements, as you have to imagine that consumers are out there trading fast-food burgers without sharing the restaurants' nutritional information. When I was a young lawyer, I assumed that senior lawyers over time come to know the law comprehensively. Now that I'm more senior, I acknowledge that, given the pace of regulatory change (and per- haps other aspects of seniority), I had to leave comprehensive knowledge behind, like Wilson bobbing on the ocean surface. What I hope for now is that, like the Mobi- us strip, the endless continuous line comes back to a comprehensible place, where lo- cal poutine resides. Neill May practises securities, M&A and corporate finance at Goodmans LLP in Toronto. The opinions expressed in this article are his alone. ometimes, securities regulation is like a Mobius strip (the strip of paper that is flipped at one end and then connected back to the other end to form one continuous loop): If you look at any single isolated part, there are two sides, but, sometimes, when you take a step back, you seem to be going in a continuous loop. A better contemporary analogy may be the fast-food salad options: The contents seem to be healthier and they must be more dietetic, but, wait, they have more calories than saucy burgers and other not great nutritional features, but, then again, they offer the advantages of fast food and do pro- vide a more varied diet, and on it goes. B A N K I N G O N C O R P O R AT E By Neill May nmay@goodmans.ca O P I N I O N The Mobius strip of securities reform S

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