General Comments

1

General support for the proposals

Nine commenters expressed general support for the proposals, subject to their comments on specific aspects of the proposals.

We thank the commenters for their input.

One commenter expressed general support for some of the proposals.

Particular comments include the following:

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The proposed rules are useful insofar as they clarify and codify existing practices.

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One commenter was supportive of the CSA's efforts to provide greater clarity with respect to the permissible pre-marketing and marketing activities in connection with prospectus offerings. For securities law practitioners, advising on these activities has traditionally required a significant amount of judgment, given the nature of existing rules and policies in this area. This has sometimes led to different views among market participants with respect to certain practices.

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The existing regulatory framework surrounding the prospectus pre-marketing and marketing regime does not appear to be sufficiently clear or well understood by investment dealers or prospective investors. The proposed rule amendments and policy changes would be beneficial to the Canadian capital markets as issuers and investment dealers would be provided with further guidance on the appropriate practices and procedures for communicating these matters with prospective investors.

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The proposed changes will increase the range of permissible pre-marketing and marketing activities in connection with prospectus offerings.

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Overall, the proposals are a significant improvement over the current regulation of pre-marketing and marketing and are much more consistent with current market practice.

While not expressly supporting the proposals, one commenter indicated that it supports any measure that would help stimulate capital raising activities while preserving the efficiency and integrity of the markets.

2

General concerns with the proposals in relation to investors

Two commenters had investor protection concerns with the proposed rule amendments and policy changes.

The rule amendments are intended to ease certain regulatory burdens and restrictions that issuers and investment dealers face in trying to successfully complete a prospectus offering, while at the same time addressing investor protection concerns.

One commenter submitted that:

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Since disclosure is one of the pillars of investor protection, any attempt to water down aspects of disclosure was suspect.

While the rule amendments increase the range of permissible pre-marketing and marketing activities available in connection with prospectus offerings, certain restrictions and conditions placed upon these activities are intended to protect investors. For instance:

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Even with regulator-approved disclosure, the content, jargon and legalese are of limited use to the average retail investor.

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Only accredited investors may be solicited under the testing of the waters exemption for IPO issuers.

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The proposals would ease regulatory restrictions faced by issuers and investment dealers when marketing prospectus offerings. The commenter did not see how changes that increase the range of permissible pre-marketing and marketing activities in connection with prospectus offerings are in the best interests of retail investors.

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Marketing materials are subject to a number of restrictions and conditions to further investor protection, including the requirements that

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The proposals will add risks for retail investors without much or any corresponding benefits or safeguards.

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the marketing materials (other than any comparables in these materials) be included or incorporated by reference into the relevant prospectus and therefore subject to civil liability for misrepresentations.

Another commenter cautioned against any changes to the existing regulatory framework that would impose additional and unduly onerous restrictions on institutional or other investors in order to provide more opportunities for investment dealers to engage in pre-marketing activities.

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the marketing materials be provided with a copy of the relevant prospectus.

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the marketing materials contain a prescribed legend with cautionary language.

We do not believe that the rule amendments will result in additional and unduly onerous restrictions being placed on institutional and other investors.

3

General support for existing rules on pre-marketing and marketing

Although expressing general support for some of the proposed rule amendments and policy changes, one commenter believes that, in general, the existing statutory regime governing pre-marketing communications adequately addresses the marketing needs of underwriters, and serves the dual purpose of protecting investors yet allowing for access to, and the efficient functioning of, the Canadian capital markets.

While the rule amendments and policy changes reflect the same policy rationales that underlie the current requirements, we believe that there is a lack of clarity around existing practices which has led, in some instances, to an unlevel playing field. One intent of the rule amendments and policy changes is to provide greater certainty around some practices, and to ensure that a level playing field exists throughout the pre-marketing and marketing process.

4

Policy rationale for existing rules

One commenter agrees with the policy rationales for the existing rules and with the CSA's belief that they are still valid.

We thank the commenter for their input.

5

Application to investment funds

One commenter was glad to see that the proposals did not apply to mutual funds. However, the commenter was concerned that the proposals would apply to exchange traded funds (ETFs) and closed end funds. The commenter noted that leveraged and reverse ETF disclosures have caused confusion in the past for retail investors and their advisors.

We have revised the rule amendments and policy changes so that, in addition to mutual funds, they will not apply to investment funds filing a prospectus on Form 41-101F2 or Form 41-101F3.

This change was made since CSA staff are considering potential disclosure reforms for investment funds filing a prospectus on Form 41-101F2 or Form 41-101F3 as part of a future stage of the CSA's point of sale project.

6

General concerns with the proposals in relation to compliance

One commenter believes there should be a requirement for dealers to establish, maintain and apply policies and procedures that establish a system of controls and supervision to ensure compliance with securities legislation and the proposed marketing rules. The commenter noted that CSA Staff Notice 31-325 Marketing Practices of Portfolio Managers gives numerous examples of misleading marketing practices that seem to recur year after year, despite repeated cautions and warnings from securities regulators. The commenter believes that these practices are not limited to portfolio managers.

This is a matter of internal compliance for dealers, who are responsible for ensuring that they comply with securities legislation, both prescriptive and principles based. Securities legislation requires dealers to deal fairly, honestly and in good faith with their clients. Securities legislation also prohibits any person or company from making statements that are misleading or untrue or omitting information that is necessary to prevent the statement from being misleading.

7

General concerns relating to interaction with U.S. prospectus marketing rules

One commenter had general concerns about how the proposed rule amendments and policy changes would work in a cross-border context. The commenter submitted that:

We have considered U.S. rules, including recent changes that have been proposed as a result of the Jumpstart Our Business Startups Act. While we appreciate that there are differences between the Canadian and U.S. regimes, we do not believe that the rule amendments will result in significant impediments to cross-border offerings, or a movement of capital-raising transactions from Canada to the U.S.

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Divergences between Canadian and U.S. rules have the potential to drive transactions and capital raising to the larger U.S. market.

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It was not proposing that the CSA merely duplicate the U.S. regime in the Canadian context. There are clear distinctions between the prospectus regimes in Canada and the U.S.

In response to specific comments, we have revised the rule amendments to provide an exception from the road show provisions so that certain issuers in a U.S. cross-border prospectus offering would not be required to:

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However, the marketing related rules adopted in the U.S. (as part of their securities offering reform in 2005) highlight the abundance of nuances that must be addressed when attempting to specifically regulate marketing initiatives in respect of a prospectus offering.

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file marketing materials used in connection with a road show on SEDAR, and

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The U.S. reforms demonstrated that significant consultation of all affected market participants is essential to establish a tailored approach that avoids impractical requirements or other unintended adverse consequences to the efficiency of one's capital markets.

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include or incorporate by reference the marketing materials in the final prospectus.

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Since there are instances where the proposed rule amendments may conflict with the equivalent U.S. rules, further consultation in respect of the proposed rule amendments is important to ensure that the final rules are workable, both from a Canadian and a cross-border context.

We note that this is intended to be a limited accommodation, which would be subject to the following conditions:

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The exception could only be used if the U.S. cross-border prospectus offering was primarily intended to be sold in the U.S.

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The issuers and underwriters would be required to provide a contractual right to any investor who viewed marketing materials used in connection with the road show, in the event the materials contain a misrepresentation.

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The contractual right noted above would be required to be disclosed in the prospectus.

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A copy of the marketing materials would be required to be confidentially delivered on SEDAR to Canadian securities regulators.

We provided this exception in response to comments that:

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Many U.S. issuers in U.S. cross-border prospectus offerings will not want to file marketing materials used in connection with an internet road show on SEDAR for fear of lawsuits from U.S. class action law firms.

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Unless the CSA provided an exception for these U.S. issuers, U.S. underwriters may avoid Canadian tranches in cross-border offerings.

Although we provided the above-noted exception in response to these concerns, we don't believe that a requirement to file marketing materials in connection with road shows on SEDAR will create an undue burden for U.S. cross-border prospectus offerings for the following reasons:

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The road show materials will only have to be filed on SEDAR in Canada if the underwriters want to provide the materials to Canadians. The issuer and the underwriters would still be able to rely on any U.S. exemption from having to file the materials on EDGAR.

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If the issuer and the underwriters conducted appropriate diligence and care, they should not be worried about the road show materials containing a misrepresentation.

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If the road show materials for a cross-border prospectus offering contained a misrepresentation, we understand that the issuer and the underwriters would, in any event, be subject to civil liability for misrepresentations under Section 12(a)(2) of the United States Securities Act of 1933 (the 1933 Act) and other provisions.

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Any liability concerns would be mitigated by the requirement that the road show materials contain a legend warning investors that the road show materials do not provide full disclosure of all material facts relating to the securities offered and that investors should read the relevant prospectus before making an investment decision.

We have also revised the rule amendments to provide an exception from certain road show procedures for certain U.S. cross-border initial public offerings where the issuer is relying on the exemption from U.S. filing requirements in Rule 433(d)(8)(ii) under the 1933 Act in respect of the road show.

Consultation

8

Further consultations and publication for comment

Four commenters wanted the CSA to engage in further consultations with market participants before implementing the proposed rule amendments.

Before the proposed rules were published for comment on November 25, 2011, we conducted informal consultations with market participants in Fall 2008 and Fall 2010.

Furthermore, two commenters believed that a revised version of the proposed rule amendments should be published for additional comment.

Since the publication of the original rule amendments and policy changes on November 25, 2011, we have engaged in targeted consultations on specific issues relevant to certain market participants.

Comments received include the followng:

Publication

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Citing investor protection concerns, one commenter urged that the proposals be referred to the OSC's Investor Advisory Panel for deeper consideration.

Market participants had an opportunity to comment during the comment process. We considered the comments that were received, and have responded to concerns that were raised by revising the rule amendments and policy changes. We do not believe that a second comment period is necessary as there have not been material changes made to the rule amendments and policy changes that were published for comment in November 2011.

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While appreciating that the CSA previously solicited feedback on the proposed rule amendments from investment dealers, another commenter does not feel that it would be appropriate to implement the proposed rule amendments without the completion of a thorough, consultative discussion between the CSA and all market participants.

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One commenter was concerned that many market participants may not fully appreciate the impact that the proposals will have on their activities. As a result, the commenter believes the CSA should not implement the proposed rules without at least publishing for comment a further revised version of the rules and obtaining comments from a sufficiently representative group of participants in the capital markets (particularly the investment dealers, institutional investors and retail investors who would be most directly affected by these changes).

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Similarly, another commenter believes that the CSA should further consult with a sufficiently representative sample of market participants and securities law practitioners in Canada, the U.S. and other relevant jurisdictions, and based on such consultation publish for comment a revised draft of the rule amendments. The commenter believes that since the proposed rule amendments raise many commercial, administrative and other elements, market participants who are directly involved in the marketing of prospectus offerings need to assess them. The commenter believes the considered perspectives of investment dealers and other direct market participants are critical to ensure the final version of the rule amendments does not unnecessarily impede the efficient operation of the Canadian capital markets.

National Instrument 41-101 General Prospectus Requirements

Scope of the definition

9

Definition -- permitted institutional investor

Six commenters believe that the definition of "permitted institutional investor" should be more consistent with the current definition of "accredited investor" in National Instrument 45-106 Prospectus and Registration Exemptions.

We have removed the definition of "permitted institutional investor" from the rule amendments. Marketing materials, including comparables, can now be provided to any investor (i.e., institutional, accredited or retail). Additionally, the rule amendments now permit an investment dealer to solicit expressions of interest from accredited investors under the testing of the waters exemption for IPO issuers, if the conditions of the exemption are met.

One of these commenters submitted that:

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The definition of permitted institutional investor in the proposed rules is narrower than the definition of accredited investor under Canadian securities laws, and notably excludes registered advisers and dealers and high net worth individuals.

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The narrower definition of permitted institutional investor is not warranted in light of the manner in which the definition is used throughout the proposed rules.

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The CSA previously issued a consultation note inviting public comment on the accredited investor definition, among other matters. Accordingly, the commenter would support the use of the accredited investor definition instead of the proposed permitted institutional investor definition throughout the proposed rules until there are further developments in response to the consultation note. In proposing the narrower definition of permitted institutional investor, it appears to the commenter that the CSA has taken a view on some of the matters that it has asked for comments on in the consultation note without the benefit of input on the consultation note.

Use of the definition -- differentiating between retail investors and institutional investors

One commenter disagreed with the proposed rules which differentiate between retail investors and permitted institutional investors in respect of the information that may be provided to them concerning a prospectus offering.

Use of the definition -- differentiating between institutional investors and other accredited investors

To the extent the proposed rule amendments and policy changes provide for a distinction between the types of investors that may, among other things, be solicited under the testing of the waters exemption or receive comparables information in a road show, six commenters submitted that the definition of "permitted institutional investor" is too narrow.

Comments received include the following:

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If the concept of a "permitted institutional investor" is retained, the definition should be expanded to include a broader class of investors.

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If the intention is to exclude retail investors, the definition of "permitted institutional investor" should be more consistent with the definition of "accredited investor" in National Instrument 45-106 Prospectus and Registration Exemptions.

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Under the proposed rules, permitted institutional investors would be permitted access to term sheets at an earlier stage than retail investors and access to road shows that excluded retail investors. However, "non-investment fund" funds, sophisticated corporate investors and foreign analogues to Canadian investment funds would also be denied access to earlier term sheets and to certain road shows.

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Excluding foreign investment funds would be problematic for any transaction with a cross-border component.

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There should be no reason to exclude any potential investor that meets the definition of "accredited investor" in Canada or the U.S. To the extent that distinctions are made, this is one that has already been made from a policy perspective (for private placements) and one that would not impose substantial additional compliance costs that would come from applying an additional classification scheme to an investment dealer's clients.

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The definition of permitted institutional investor is quite narrow, and excludes investors that would be expected to be canvassed under the testing of the waters exemption.

10

Definition -- road show

One commenter noted that the proposed definition of "road show" requires that one or more executive officers of the issuer be in attendance at the road show for it to be a "road show". The commenter submitted that:

We have revised the definition of "road show" to mean a presentation to potential investors, regarding a distribution of securities under a prospectus, conducted by one or more investment dealers on behalf of an issuer in which one or more executive officers, or other representatives, of the issuer participate.

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This may result in certain road shows not qualifying.

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For example, some structures involve a new entity being incorporated to acquire an operating business. There may only be a limited number of executive officers at the issuer level, with additional executive officers at the operating business. A road show that involved only the latter would not qualify.

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Similarly, a director is not an "executive officer". A road show that involved only a director of the issuer would not qualify.

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The definition should contemplate alternative arrangements such as these, and others that might arise if the person attending the particular road show does not fall within a definition that has been crafted for other uses.

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This could be accomplished by adding the phrase "or other representative of the issuer" in the definition.

11

Definition -- term sheet

One commenter was concerned that the proposed definition of "term sheet" in NI 41-101 is overly broad, in that it only excludes a prospectus, notice, circular, advertisement, letter or other communication expressly permitted by securities legislation. The commenter submitted that:

We have made certain changes to clarify the scope of the rule amendments and policy changes.

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This may have unintended consequences in respect of certain email or other communication with investors that references the distribution, but is not of the same character or does not contain the type of information that would be conveyed in communication with the intention of soliciting interest.

We have revised the rule amendments and policy changes to distinguish between "standard term sheets" and "marketing materials". We have also defined "preliminary prospectus notice" and "final prospectus notice" to include the notices, circulars, advertisements, letters or other communications currently permitted by securities legislation.

Standard term sheets

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The definition should be refined so that it applies to a written communication regarding a distribution of securities under a prospectus that contains material information about the distribution and legal terms of the offering that is available under the prospectus.

The rule amendments allow standard term sheets to include specified information, as set out in NI 41-101, relating to the basic factual terms of a prospectus offering, provided that such information is contained in the applicable prospectus (or, in the case of a bought deal, the bought deal news release, the issuer's continuous disclosure record on SEDAR, or the subsequent preliminary prospectus). The definition of standard term sheet in NI 41-101 excludes a preliminary prospectus notice and a final prospectus notice.

Standard term sheets will not have to be filed on SEDAR or included or incorporated by reference into the issuer's prospectus. As a result, they will not be subject to civil liability, but will still be subject to existing statutory prohibitions for misleading or untrue statements.

Marketing materials

To better draw a distinction between standard term sheets and more detailed materials, we have replaced "term sheet" with "marketing materials" throughout the rule amendments and policy changes. With some exceptions, marketing materials are generally subject to the same conditions as term sheets were in our November 2011 proposals.

We have defined "marketing materials" in NI 41-101 to mean a written communication intended for potential investors regarding a distribution of securities under a prospectus that contains material facts relating to an issuer, securities or an offering.

The definition of marketing materials excludes:

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a prospectus or any amendment,

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a standard term sheet,

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a preliminary prospectus notice, and

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a final prospectus notice.

In addition, we have included companion policy guidance in 41-101CP explaining that the definition is not intended to include certain communications from an investment dealer to an investor, such as a cover letter or email that merely encloses a copy of a document such as a prospectus, a standard term sheet or marketing materials, but does not include any material facts about an issuer, securities or an offering.

Marketing materials must be filed on SEDAR and included or incorporated by reference into the relevant prospectus. Accordingly, they will be subject to civil liability for misrepresentations, in addition to statutory prohibitions for misleading or untrue statements.

12

Meaning of "provide"

One commenter noted that it was unclear whether the term "provide" in the proposed rules would capture situations where investors were:

For reasons of investor protection, we have revised the rule amendments and policy changes relating to standard term sheets, marketing materials and road shows to clarify that they apply to situations where an investor is shown a copy of such materials but not permitted to retain a copy. For example, see new subsection 13.0(3) of NI 41-101.

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Shown a term sheet but not permitted to retain a copy.

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Shown a PowerPoint presentation during a road show, but not provided with a paper copy.

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Shown written materials during a road show but not permitted to retain a copy.

The commenter submitted that:

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Issuers should not be permitted to avoid liability where written materials are misleading through the simple expediency of refusing to provide a hard copy of the materials to investors.

We agree with the commenter that issuers should not be permitted to avoid liability where written materials are misleading by refusing to provide a hard copy of the materials. We note that investors may make investment decisions on the basis of materials that are shown to them.

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Accordingly, the language in the proposed rules should be broadened to encompass situations where written materials are shown to investors.

13

Materials relating to prospectus offering -- distinction between investors

One commenter disagrees with the proposed rules which differentiate between retail and institutional investors in respect of the information that may be provided to them concerning a prospectus offering. The commenter submitted that:

We have revised certain proposed rule amendments that distinguished between the material that can be provided to different investors in a prospectus offering.

Testing of the waters exemption for IPO issuers

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This distinction is inconsistent with the principle that the prospectus must contain full, true and plain disclosure of all of the material facts relating to the securities offering.

We have revised the rule amendments to provide that the testing of the waters exemption for IPO issuers can be used to solicit any accredited investor (rather than only permitted institutional investors). We believe that this will allow issuers to solicit a broader base of investors under the exemption. Additionally, existing securities legislation permits accredited investors to purchase securities without a prospectus based on the view that they are sophisticated investors or other investors that do not need the protection of a prospectus.

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Any investor that is eligible to participate in an offering should have an equal opportunity to receive any disclosure provided.

However, due to investor protection concerns, we have not broadened the class of persons who can be solicited under the exemption to include all retail investors.

Comparables

The original proposals provided that comparables could only be given to permitted institutional investors in the absence of civil liability. We have revised the rule amendments to provide that comparables can be provided to any investor (i.e., institutional, accredited or retail) in marketing materials in the absence of civil liability.

To address investor protection concerns, the rules require that comparables be provided with certain disclosure.

Road shows

We have revised the rule amendments and policy changes to include standard provisions that apply to road shows which may be attended by any investor (i.e., institutional, accredited or retail).

14

Testing of the waters exemption for IPO issuers -- general support

Four commenters were particularly supportive of the proposed testing of the waters exemption for IPO issuers.

We thank the commenters for their input.

One commenter agreed that the conditions set forth in the exemption appropriately address the issues of ensuring confidentiality and preventing a conditioning of the market.

15

Testing of the waters exemption for IPO issuers -- definition of permitted institutional investor

One commenter recommended using the "accredited investor" definition in National Instrument 45-106 Prospectus and Registration Exemptions rather than the proposed definition of "permitted institutional investor" to describe those investors that could be canvassed under the testing of the waters exemption. The commenter submitted that:

We have revised the rule amendments to provide that the testing of the waters exemption for IPO issuers can be used to solicit any accredited investor. See response to item 13.

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The current accredited investor definition more closely reflects the types of investors that would be interested and appropriately qualified to receive and assess information.

However, due to investor protection concerns, we have not broadened the class of persons who can be solicited under the exemption to include all retail investors.

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The definition of permitted institutional investor is quite narrow, and excludes investors that would expect to be canvassed in the process of testing the waters such as foreign hedge funds or U.S. accredited investors. The commenter believes that inclusion of these entities should not raise any public policy concerns.

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The CSA may wish to consider allowing the "testing of the waters" exemption to apply to sophisticated retail investors who may be most likely to participate in certain types of structured product offerings. The commenter submitted that from an investor protection perspective, it may be appropriate to restrict retail exposure to only accredited investors.

16

Testing of the waters exemption for IPO issuers -- permitted information

Four commenters were in favour of rules and restrictions on what information could be given to investors under the proposed testing of the waters exemption for IPO issuers.

We have revised the amendments to NI 41-101 to provide that while materials used by a dealer to solicit investors under the testing of the waters exemption for IPO issuers must be approved by the issuer, each dealer will not be required to use the same materials.

One commenter expressed concern about multiple "term sheets" being used to test the waters, resulting in potential abuses through differential disclosure. The commenter submitted that:

We have also included companion policy guidance in 41-101CP explaining that the testing of the waters exemption may be used by more than one dealer at the same time, provided the issuer has authorized each dealer in accordance with the conditions of the exemption.

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Some dealers may use a document containing overly promotional content that the issuer has not approved in an attempt to get a more positive response than other dealers competing for the same work.

We believe that the risk of abuse of the nature specified by the commenter will be mitigated by the requirements that the issuer:

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authorize each dealer, and

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approve all materials that are used under the exemption.

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The rules should provide that any document used to test the waters that identifies or contains sufficient information to identify the issuer be approved in writing by the issuer and that the issuer provide that same document to any dealer that is testing the waters at approximately the same time.

Two commenters were of the view that confidential information provided to permitted institutional investors under the proposed testing of the waters exemption for IPO issuers should be limited to the information that would be disclosed in the prospectus.

Information distributed to investors under the testing of the waters exemption will not be limited to information that would be disclosed in the prospectus. However, we have included companion policy guidance in 41-101CP to remind issuers that:

One commenter noted that one of the proposed conditions of relying on the exemption is that any written material must bear a legend indicating that the material is not subject to liability for misrepresentations under securities law. The commenter submitted that:

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the preliminary prospectus must contain full, true and plain disclosure of all material facts, and

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selective disclosure concerns would arise if an investor was provided with material facts that are not disclosed in any subsequent prospectus.

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In the interests of investor protection, a reference should also be made to the fact that the information is subject to the disclosure contained in the prospectus.

We have not prescribed any additional legend requirements if materials are given to investors solicited under the exemption. If a dealer or an issuer wishes to include additional disclaimers, they may do so.

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The rationale for such an additional legend requirement is that: (a) investors should make their investment decision based on the prospectus, which is the principal disclosure document; and (b) the information may change due to the length of time that may elapse between the initial contact with a potential IPO investor and the date the IPO prospectus is receipted.

17

Testing of the waters exemption for IPO issuers -- confidentiality requirement

One commenter made reference to the proposed requirement that before an investment dealer could provide a permitted institutional investor with confidential information about a proposed IPO, the investor must confirm in writing that it will keep the information confidential. The commenter submitted that:

We have revised the amendments to NI 41-101 to require any investor solicited under the testing of the waters exemption for IPO issuers to confirm in writing that it will keep information about the proposed offering confidential and not use it for any purpose other than assessing the investor's interest in the offering until the earlier of:

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In practice, should an investor choose to receive confidential information after being approached by an investment dealer, it may be difficult to ascertain whether inside information has been made available by the investment dealer to the investor.

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the information being generally disclosed, or

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Additional guidance on what the CSA considers material, undisclosed information would be helpful so investors' trading activities are not unduly impacted.

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the issuer confirming in writing that it will not be proceeding with the offering.

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The CSA should specify, or outline the factors in determining, the time period within which an investor would be expected to continue to treat the information as confidential.

18

Testing of the waters exemption for IPO issuers -- liability for permitted information

One commenter supported keeping any "term sheets" used in testing the waters for IPO issuers out of the prospectus liability regime as the disclosures in such documents would, due to their preliminary nature, not necessarily have been subject to adequate or significant due diligence.

Confidential materials used in connection with the testing of the waters exemption for IPO issuers are not subject to the statutory civil liability regime for prospectuses.

19

Testing of the waters exemption for IPO issuers -- record keeping

Two commenters believe that there should not be any additional record keeping involved with the proposed testing of the waters exemption for IPO issuers.

We have retained the record keeping requirements in the amendments to NI 41-101. We believe that these requirements are an important safeguard that should be in place if investors are provided with confidential information prior to an initial public offering.

In particular, two commenters were concerned that the proposed documentation requirements will add unnecessary costs and/or administrative burdens without corresponding significant benefit.

We note that the rule amendments do not prescribe the manner in which records must be kept. This provides investment dealers with flexibility to develop mechanisms that fit within their existing record keeping practices.

One commenter was concerned that the proposed rules would require dealers to develop and maintain separate systems to meet the specific requirements of the proposal. The commenter submitted that:

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Currently, dealers maintain comprehensive record keeping systems suited to their particular operational and compliance processes and system configuration.

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If the regulatory objective is to ensure that no information is disclosed that will not be included in the prospectus, this can be achieved by permitting the dealers to develop processes that are consistent with their existing record keeping systems to achieve this objective, rather than prescribing specific procedures.

20

Testing of the waters exemption for IPO issuers -- timing

For dealers relying on the testing of the waters exemption for IPO issuers, one commenter was of the view that there should not be any time limitations when marketing to permitted institutional investors prior to the filing of the preliminary prospectus for an IPO.

We have revised the amendments to NI 41-101 to limit the testing of the waters exemption for IPO issuers to solicitations of expressions of interest that take place outside of the 15 day period prior to filing of the preliminary prospectus.

The testing of the waters exemption is intended to help investment dealers and issuers assess interest in a potential IPO in advance of the IPO process and, in particular, before incurring costs in preparing a preliminary prospectus. We do not believe that the exemption should be used in order to "pre-sell" the IPO on the eve of filing a preliminary prospectus.

We believe that the 15 day restricted period is in line with the policy intent behind the exemption, and also helps to mitigate regulatory concerns around leaks of information before the preliminary prospectus is filed.

21

Testing of the waters exemption for IPO issuers -- request for additional guidance

One commenter requested that the CSA provide further guidance regarding the applicability of the testing of the waters exemption to a situation where a subsidiary of a public company is undertaking an IPO, and this transaction is deemed material to the parent company. The commenter also felt that guidance in respect of "wall crossing" would be instructive to the market.

In order to address insider and tippee trading concerns, we have revised the amendments to NI 41-101 to provide that the testing of the waters exemption for IPO issuers may not be used for an issuer contemplating an initial public offering if:

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any of the issuer's securities are held by a control person that is a "public issuer" (as defined in NI 41-101), and

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the initial public offering would be a material fact or a material change with respect to the control person.

22

Testing of the waters exemption for IPO issuers -- drafting comments

One commenter had a drafting comment on the opening language in proposed subsection 13.4(1) of NI 41-101. The commenter suggested removing the phrase "offering of securities of an issuer" and replacing it with "offering by an issuer". The commenter submitted that:

We have made the suggested change.

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This change may not be absolutely necessary given that the issuer must not be a reporting issuer in any jurisdiction in any event, but may more properly reflect the intent.

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In other words, it is an initial public offering by the issuer, not of a specific class or kind of securities of the issuer.

23

Term sheets -- general

Two commenters expressed general support for the proposed rules that would permit term sheets to be provided at the time of the preliminary prospectus and final prospectus to all investors, both retail and institutional (subject to their comments on specific aspects of the proposals).

We thank the commenters for their input.

Comments received include the following:

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The proposed rules would allow an investor to quickly identify the relevant facts of the offering.

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While the prospectus is the cornerstone disclosure document for any offering, communication methods have developed over time and there is more information available electronically to investors than ever before in making an investment decision.

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The proposed rule amendments and policy changes are an important step in modernizing the marketing regime for Canadian prospectus offerings and bringing that regime in line with the regimes of other jurisdictions to facilitate multi-jurisdictional offerings.

24

Term sheets -- distinction between "term sheets" and "written marketing materials"

One commenter submitted that:

See response to item 11.

•

The majority of public offerings make use of a term sheet (a "standard term sheet") that simply states the basic factual terms of the transaction such as price, total deal size, over-allotment terms, use of proceeds, jurisdictions of sale, commission, closing date, etc.

•

If upon review of the standard term sheet, a potential investor expresses an interest in participating in the transaction, then, in accordance with applicable securities legislation, a prospectus is delivered to that potential purchaser.

•

Any new rules should differentiate between a standard term sheet and the type of term sheet that would be permitted under the proposals, both in terminology and in regulation. The former is correctly called a "term sheet", while the latter should be given another name, such as "written marketing materials".

Approval of marketing materials

25

Term sheets -- approval and filing on SEDAR

Two commenters had concerns with the proposed requirement that a term sheet be approved in writing by the issuer and underwriters and filed on SEDAR before solicitation activities commence.

We have revised the rule amendments to provide that only a template version of marketing materials must be pre-approved in writing by the issuer before use. Furthermore, the rule amendments only require that the template version of the marketing materials be pre-approved in writing by the lead underwriter, rather than all underwriters. For civil liability and investor protection reasons, we believe the template version of the marketing materials should be subject to these approval requirements.

One commenter submitted that:

•

The requirement of written approval could lead to difficulties in timing, which often is crucial for such transactions.

•

The provision could be modified to allow for a 24-48 hour filing requirement without creating public policy concerns.

Another commenter submitted that:

In order to minimize potential compliance burdens, the rule amendments provide that:

•

It is unclear what policy rationale is served by requiring that term sheets be approved and filed in advance of their first use, particularly where the content must be included (or incorporated, as applicable) in the preliminary and final prospectus of an offering.

•

if a template version of the marketing materials is approved and filed, an investment dealer or the lead underwriter may prepare and provide a limited-use version of the marketing materials that contains certain additional or alternative information (as described below), and

•

Canadian investors may withdraw from their purchase within the two days following the receipt of the final prospectus.

•

if the template version of marketing materials is divided into separate sections, an investment dealer may provide a limited-use version of the marketing materials that includes only one or more of those separate sections.

Filing of marketing materials

•

Any limited benefit served by the requirement for the advance approval and filing of a term sheet is outweighed by the associated costs and administrative burden.

We have also revised the rule amendments to require that the template version of the marketing materials be filed on SEDAR on the same day that they are first shown or provided to potential investors (rather than filed before use).

•

In addition to extra costs and administrative burden associated with the approval and filing requirement, this requirement may also, in certain circumstances, significantly impede the efficient operation of the markets.

We believe that selective disclosure concerns that may arise with this approach (i.e., same day filing rather than filing before use) are mitigated by the fact that the information in the marketing materials will be disclosed in, or derived from, the relevant prospectus.

•

For example, it would force the prior formal approval and filing of a term sheet that simply contains a description of the final terms of the securities in an offering.

Definition of limited-use version

•

In a U.S. context, it is vital that this pricing term sheet be available for transmission to accounts immediately after pricing in order to confirm sales as it forms part of the "disclosure package" at the time of sale. A delay to permit the review, approval and filing of such a term sheet can create risk that investors who had informally committed to a particular offering may reconsider their decision as a result of that delay.

We have defined the term "limited-use version" in NI 41-101 to mean a template version of a document in which the spaces for information have been completed in accordance with certain specified provisions.

Standard term sheets

•

To address this risk, the U.S. rules permit the filing of the pricing supplement as late as two days following this transmission.

As noted above, the new provisions for standard term sheets are not subject to approval and filing requirements.

26

Term sheets -- distribution of term sheets with the prospectus

One commenter had the following comments on the proposed rules that require an investment dealer to provide a copy of the prospectus with a term sheet when the term sheet is provided to a potential investor:

We have considered the comments, and have retained the requirement that, other than marketing materials provided before the filing of a preliminary prospectus for a bought deal, marketing materials must be provided to investors with a copy of the relevant prospectus. Since the marketing materials will not provide full, true and plain disclosure of all material facts, they should generally be provided with a copy of the relevant prospectus.

•

This requirement may not reflect current investment dealer practice and may be difficult for investment dealers to comply with.

PREP and shelf offerings

•

Term sheets are typically emailed to investors by members of an investment dealer's sales force, while prospectus delivery is typically handled by a separate distribution centre of an investment dealer (usually located at separate premises from the sales force, depending on the size of the dealer), or may in some cases be outsourced by the dealer to a service provider.

We have also provided for some accommodations to the general requirement to provide marketing materials where the post-receipt pricing process is used, and in relation to shelf prospectus supplements. In particular, an investment dealer can provide marketing materials before a shelf prospectus supplement has been filed. We believe that these accommodations will address some of the concerns raised by the commenters.

Electronic delivery

•

The prevailing dealer practice remains to deliver paper copies of prospectuses in order to fulfil a dealer's statutory obligation to deliver a prospectus. As a result, term sheets are typically delivered by email by personnel within an investment dealer who are usually different than the group responsible for delivery of prospectuses in paper form.

We also note that National Policy 11-201 Electronic Delivery of Documents sets out the circumstances in which a prospectus can be delivered by electronic means.

Compliance

•

As a result of the foregoing, it would be difficult to comply with the requirement in the proposed rules to provide a copy of the preliminary prospectus, final prospectus or amendment (as applicable) with the term sheet, since these documents are typically delivered separately and in different formats (the prospectus in paper form and the term sheet in electronic form).

We do not believe it is onerous for a member of the sales force at an investment dealer to comply with the requirements and send a copy of the marketing materials and the relevant prospectus to an investor by email or paper delivery.

•

Where an offering of securities is to be made pursuant to an issuer's shelf prospectus, the proposed rules appear to require an investment dealer to provide a copy of the base shelf prospectus with the term sheet where the prospectus supplement is not yet available (i.e., after launch of an offering but before the end of the two business day period for delivery).

Furthermore, an investment dealer may choose to retain its current procedures for paper delivery of the prospectus notwithstanding that the investor may already have received an electronic copy of the prospectus with an earlier email from a registered representative enclosing marketing materials. We do not think this raises any undue administrative burdens.

Standard term sheets

•

Under current practice for an offering of securities made pursuant to an issuer's shelf prospectus, the term sheet would be sent on its own after launch of the offering, while both the base shelf prospectus and the shelf prospectus supplement would be sent together to investors within the allowable two business day period. The commenter believes that there is little added benefit to be gained by requiring a base shelf prospectus on its own to be delivered to investors with a term sheet, and this additional delivery requirement will impose an additional compliance burden on investment dealers.

As noted above, the new provisions for standard term sheets do not require that standard term sheets be provided to investors with a copy of the relevant prospectus.

27

Term sheets -- requirement to send a revised term sheet

Two commenters had concerns with the proposed rules requiring that a revised term sheet be sent to investors who received the original term sheet in certain circumstances, namely when the subsequent preliminary short form prospectus, final prospectus, shelf prospectus supplement or amendment (as the case may be) modifies a statement of a material fact that appeared in the original term sheet.

We have removed this delivery requirement. Instead, we have revised the rule amendments to provide that if a prospectus or an amendment to a prospectus modifies a statement of material fact that appeared in earlier marketing materials, the issuer must:

•

post a revised, blacklined version of the marketing materials on SEDAR at the time the prospectus (or amendment) is filed, and

One commenter submitted that:

•

There should be an exception to these requirements where the modified information is simply to identify final terms of the offering. There will always be such a modification in marketed offerings where a term sheet with preliminary terms is provided and there is no utility in requiring delivery of a revised term sheet and disclosure to identify this type of modification.

•

disclose, in the prospectus (or amendment), how the statement in the previous marketing materials has been modified by a statement in the prospectus (or amendment), and state that a revised, blacklined copy of the marketing materials has been filed on SEDAR.

•

More generally, it seems duplicative to require delivery of a revised term sheet to highlight any modification where the final prospectus will highlight the change. If the CSA is concerned with the prominence of the disclosure, this concern should instead be addressed in the prospectus disclosure requirement.

Since a retail investor may have made an investment decision on the basis of a statement of material fact in the marketing materials, we think any changes to that statement should be highlighted in the above manner.

Another commenter submitted that:

•

The requirement is unnecessary given that the language of the proposed rules contains the standard "modifying or superseding" language that allows the subsequent preliminary prospectus, final prospectus, shelf prospectus supplement or amendment (as the case may be) to modify or supersede the contents of the earlier term sheet.

•

One of the hallmarks of the Canadian prospectus offering regime is that investors are considered to make their investment decision on the basis of the disclosure in the final prospectus (notwithstanding that there may have been changes in disclosure since the preliminary prospectus). Investors are then given a two day right to withdraw from their purchase of securities after having received the final prospectus. Accordingly, even if certain statements of a material fact in the original term sheet are modified or superseded by the subsequent version of the prospectus document, a purchaser is ultimately making its investment decision on the basis of the disclosure in the final prospectus.

•

The requirement to send a revised term sheet highlighting modified statements of a material fact together with the subsequent version of the prospectus document would be difficult to comply with since the responsibility within a dealer for delivery of term sheets and prospectuses may reside in separate groups, or in some cases separate firms if the dealer has outsourced the prospectus delivery function.

•

There is limited substantive disclosure about the issuer in a term sheet for a prospectus offering, and so it may be less likely that a subsequent version of the prospectus document would modify a statement of a material fact that appeared in the original term sheet.

•

The one exception is information regarding offering price and offering size, as term sheets for a marketed offering will refer to the pricing and sizing range. In the event that the pricing and sizing range for a marketed offering were to change from that indicated in the original term sheet, investment dealers would typically send a revised term sheet to potential investors with the modified information. However, this revised term sheet is sent independently of the final prospectus.

28

Term sheets -- French translation

Given the requirement in the proposed rules to include or incorporate by reference a term sheet in an issuer's preliminary prospectus or final prospectus (as the case may be), one commenter assumed that a term sheet would need to be translated into French in order to comply with French language requirements in the province of Québec. The commenter believes that this would be a change to current practice.

Under the rule amendments:

•

a template version of the marketing materials must be filed on or before the day that the marketing materials are first provided to a potential investor (guidance on the meaning of "provide" is set out in subsections 6.5(B)(3) and 6.12(4) of 41-101CP), and

•

if marketing materials are provided, the issuer must include, or incorporate by reference, the template version of the marketing materials in its final prospectus.

Under applicable legislation in Québec, a French template version of the marketing materials would have to be prepared and filed at the time the template version is included or incorporated by reference in the final prospectus (if the issuer files the final prospectus in Québec).

29

Term sheet -- "fair, true and plain" requirement

Two commenters had concerns on how the proposed rules would impose a new standard of disclosure for term sheets, that of "fair, true and plain" disclosure.

We have revised the rule amendments to remove the "fair, true and plain" standard for marketing materials. However, while marketing materials are not subject to an express standard, we have included companion policy guidance in 41-101CP indicating that marketing materials are subject to the provisions in securities legislation that prohibit misleading or untrue statements.

One commenter submitted that:

•

It understands that liability for the information in a term sheet will arise from its inclusion (or incorporation) in the final prospectus.

•

The misrepresentation standard applicable to the contents of the prospectus does not take into account the balanced requirement that the proposed rule amendments impose on a term sheet.

The template version of the marketing materials must be filed on SEDAR and incorporated by reference or included in the relevant prospectus. Accordingly, they will also be subject to civil liability.

•

Accordingly, it appears that enforcement of this requirement of the term sheet will fall on members of the CSA in the prospectus review process. The commenter anticipates that the additional interaction with the members of the CSA (and any attendant revisions to the term sheet thereby required) may impose delay on the prospectus review and approval process.

•

We believe that subjecting marketing materials to civil liability enhances investor protection.

•

We expect issuers and investment dealers to be accountable to investors if they provide investors with marketing materials that contain a misrepresentation.

•

In a prospectus offering, an investor may make an investment decision based on information in marketing materials.

•

Further, in the context of a take-down from a shelf prospectus, there is effectively no mechanism by which to enforce a balanced component of the fair, true and plain standard, as prospectus supplements are not subject to regulatory review.

•

An investor who receives marketing materials may decide not to participate in the prospectus offering, but may instead proceed to buy securities of the issuer in the secondary market on the basis of information in the marketing materials. Accordingly, these materials should be subject to the secondary market civil liability provisions in securities legislation.

Another commenter submitted that:

•

Given that the proposed rules require the term sheet to be contained or incorporated by reference in the prospectus which is subject to its own standard of disclosure ("full, true and plain") and given that the prospectus must be delivered and will attract liability for misrepresentations to investors purchasing pursuant to the prospectus, is there a need for a separate standard of disclosure for a term sheet and should the term sheet attract liability as a stand-alone document?

Because marketing materials will be included or incorporated by reference in the relevant prospectus, they will become part of the prospectus document which is subject to a full, true and plain standard.

However:

•

The term sheet will be required to be filed on SEDAR and will attract liability to secondary market investors for any misrepresentation. This includes liability for any omission. As the disclosure is not "full" disclosure, it is difficult to see how this standard will be interpreted.

•

comparables can be removed from the template version of marketing materials that is filed on SEDAR, and

•

the relevant prospectus need only include, or incorporate by reference, the template version of the marketing materials with the comparables removed.

•

The term sheet and the prospectus should be seen as a single document for the purposes of assessing statutory liabilities.

Accordingly, comparables will not be subject to civil liability. Issuers will, however, be required to confidentially deliver the complete template version of the marketing materials on SEDAR (the delivered materials will not be made public).

•

Unlike other documents incorporated by reference in prospectuses (e.g., financial statements), term sheets do not have their own specific purpose outside the context of an offering.

The marketing provisions require that any marketing materials contain a prescribed legend noting that:

•

The marketing materials do not provide full disclosure of all material facts relating to the securities offered.

•

Amendments to the secondary market regime would be necessary to ensure term sheets are not considered "documents" attracting liability by themselves.

•

Investors should read the relevant prospectus for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.

•

Information contained in term sheets incorporated by reference in a prospectus will be subject to review by regulators. Accordingly, this review should discourage the publication of overly promotional term sheets.

This legend will address some of the commenters' concerns about liability.

Civil liability

30

Term sheets -- liability

One commenter strongly endorsed the approach of attaching civil liability to term sheets and written road show materials. The commenter submitted that:

We agree with the commenter that marketing materials should generally be subject to statutory civil liability. We believe that this enhances investor protection.

•

These materials can and do play a critical role in the marketing of securities to the public.

Comparables included in marketing materials will not be subject to civil liability (see response to item 29). However, the rules will require that any comparables in marketing materials be accompanied by cautionary language.

•

Because such materials do influence investor decisions, civil consequences should attach to misrepresentations that are contained in such materials.

•

The risk of civil liability will incentivize issuers and underwriters to ensure that the disclosures in such documents are not materially misleading.

31

Term sheets during the waiting period -- drafting comments

One commenter had drafting comments on the language in proposed subsections 13.5(3), (4), (5) and (6) of NI 41-101. The commenter submitted that:

This language has been removed from the amendments to NI 41-101. The relevant language now appears in Item 36A of Form 41-101F1 and Item 11.6 of Form 44-101F1. Although we have not adopted the commenter's suggested drafting changes, we believe the language in these items provides adequate instructions to filers.

•

These provisions are somewhat confusing given that any term sheet and revised term sheet either have to be specifically incorporated by reference or will be deemed to be incorporated by reference into the prospectus.

•

For example, in paragraph 13.5(3)(b), it states that one must indicate that the term sheet is not part of the final prospectus to the extent that the term sheet's contents have been modified or superseded by a statement contained in the final prospectus.

•

The provision would be clearer if it simply stated that any statement in the term sheet that is modified or superseded is deemed also to be modified or superseded by the statement in the final prospectus.

32

Term sheets after the receipt of a final prospectus

One commenter had concerns about aspects of the proposals relating to term sheets after the receipt of a final prospectus. The commenter submitted that:

Our policy concerns regarding the use of marketing materials during the waiting period also apply to the use of marketing materials after a receipt for a final prospectus.

•

The proposed rule amendments would expressly regulate marketing during the period following the issuance of a receipt for a final prospectus. Current law limits distribution of marketing material during the waiting period by virtue of the prospectus requirement. There is, however, no equivalent limitation in the post-final receipt period.

As described in item 11, we have revised the rule amendments and policy changes to distinguish between "standard term sheets" and "marketing materials".

Standard term sheets can be distributed after the receipt of a final prospectus without the same requirements as marketing materials.

•

Accordingly, the CSA should conduct further consultation of market participants to understand the implications of the proposed rule amendments and whether a different marketing regime is appropriate during the post-receipt period than is proposed for the waiting period.

We have also provided for some accommodations to the general requirement to provide materials where the post-receipt pricing process is used, and in relation to shelf prospectus supplements. In particular, an investment dealer can provide marketing materials before a shelf prospectus supplement has been filed. We believe that these accommodations will address some of the concerns raised by the commenters.

•

At a minimum, exceptions from the proposed term sheet requirements should be made with respect to term sheets that simply set out the potential or actual terms of an offered security.

NI 44-102 has been amended to provide that information (with certain exceptions) in a standard term sheet or marketing materials for a draw-down under a final base shelf prospectus:

•

It is impractical to require that pricing supplements be approved and filed in advance of their first use.

•

is disclosed in, or derived from, the final base shelf prospectus, any amendment or an applicable shelf prospectus supplement that has been filed, or

•

Accommodation should also be made for marketing a take-down off a shelf prospectus with a term sheet that simply sets out potential terms of the securities.

•

will be disclosed in, or derived from, an applicable shelf prospectus supplement that is subsequently filed.

•

While filing this term sheet may not be problematic, the proposed rule amendments would require that a preliminary prospectus supplement also be filed in advance as the information in the term sheet must be disclosed in a prospectus filed on SEDAR and this information would only be available in a preliminary prospectus supplement.

NI 44-103 has been amended to provide that information (with certain exceptions) in a standard term sheet or marketing materials after the receipt of a final base PREP prospectus:

•

This is at odds with current practice for Canadian shelf offerings (where only a final prospectus supplement is typically filed) and would unnecessarily delay solicitations of interest in a potential shelf take-down by a short form issuer, thereby defeating the efficiency of the shelf procedures.

•

is disclosed in, or derived from, the final base PREP prospectus, the supplemented PREP prospectus or any amendment that has been filed, or

•

will be disclosed in, or derived from, the supplemented PREP prospectus that is subsequently filed.

33

Term sheets -- conflicts with market practice and U.S. rules

One commenter was concerned that the proposed term sheet provisions contain potential conflicts with market practice and the U.S. marketing rules. The commenter submitted that:

The revised rule amendments require that, other than contact information for the investment dealer and the underwriters and any comparables, all information in marketing materials must be disclosed in, or derived from, the relevant prospectus.

•

Some of these conflicts will stem from the requirement that all information in a term sheet be disclosed in both the preliminary and final prospectus.

If an investment dealer wants to include information in marketing materials, it should first ensure that the information is included in the relevant prospectus. We do not believe this requirement is onerous.

•

At a minimum, there should be a materiality threshold such that immaterial term sheet information need not be in the prospectus.

We note, however, that a limited-use version of the marketing materials can contain certain deviations from the template version of the marketing materials that is filed on SEDAR (see response to item 25).

•

Under U.S. rules, a "free writing prospectus" may contain information that is additional to the registration statement in respect of the securities offering; it simply must not conflict with the information in that registration statement or the issuer's continuous disclosure record.

Interaction with U.S. requirements

•

The CSA should give further consideration to what additional information may typically be included in a free writing prospectus and whether this additional information should be accommodated in the term sheet requirements of the proposed rule amendments.

We do not believe that this requirement will create a burden for U.S. cross-border prospectus offerings. In order for an issuer or underwriter in a cross-border prospectus offering to comply with the proposed Canadian rules, they need to ensure that any marketing materials given to a Canadian investor do not contain information that is not in the relevant prospectus filed on SEDAR (subject to the exceptions discussed above). We do not believe that this is an onerous requirement.

•

Due to the breadth of the definition of term sheet, additional exceptions should be added to avoid the burden of filing every written communication regarding a distribution where there is no utility in each such filing being made.

We note that, unlike U.S. prospectuses generally, a free writing prospectus is not subject to liability under Section 11 of the Securities Act of 1933 (the 1933 Act). However, because it is used in connection with the offering of securities, we understand that a free writing prospectus is subject to liability under Section 12(a)(2) of the 1933 Act and the general anti-fraud provisions. If, for U.S. liability reasons, an issuer does not want to include certain information in the U.S. prospectus that forms part of the U.S. registration statement, the issuer can include the information in a "Canadian wrap" to the version of the U.S. prospectus filed on SEDAR.

•

For example, a term sheet will encompass underwriter generated Bloomberg screens and other underwriter communications that contain additional market or other offering specific information (such as comparisons of yield or other terms or metrics of comparable securities).

•

This additional information would not generally constitute "issuer information" and, provided it is not distributed in a broad, unrestricted manner, would not require a filing under applicable U.S. rules.

Definition of marketing materials

•

Further, the U.S. rules exempt from the filing requirements any new materials that do not contain substantive changes from or additions to previously filed materials. As a practical matter, similar exceptions should be made in the proposed rule amendments.

The definition of marketing materials only applies to certain communications. See response to item 11.

•

Following further consultation with market participants, the CSA may identify other instances where the term sheet requirements inhibit the efficiency of the capital markets or impose significant administrative burden with no corresponding benefit in investor protection.

•

The CSA may also identify additional circumstances that are not intended to be caught by these requirements for which clarification would be appropriate.

34

Road shows -- general

Subject to their comments on specific aspects of the road show proposals, one commenter expressed general support for the CSA's efforts to provide clarity to the current marketing regime through rules that expressly acknowledge road shows are a permissible solicitation of expressions of interest.

We thank the commenter for their input.

35

Road shows -- request for additional guidance

Given the breadth of the proposed definition of "road show", one commenter suggested that the CSA provide guidance regarding how the road show provisions interact with:

The commenter has made reference to the prospectus requirement (section 53 of the Ontario Act), and an exception to the prospectus requirement (subsection 65(2) of the Ontario Act, which allows for certain activities during the waiting period that would otherwise be prohibited by the prospectus requirement).

•

conduct that forms part of solicitations of expressions of interest permitted under subsection 65(2) of the Securities Act (Ontario) (the Ontario Act) (and the equivalent provisions in other jurisdictions), and

The road show provisions serve as additional exceptions to the prospectus requirement in the Ontario Act and in other securities legislation, and supplement provisions such as subsection 65(2). Parties other than investment dealers continue to be regulated by existing marketing and pre-marketing restrictions.

•

acts in furtherance of trades that form part of the distribution under the extended definition of "trade" in the Ontario Act which may be undertaken in reliance on section 53 of the Ontario Act (and the equivalent provisions in other jurisdictions) following the issuance of a receipt for the final prospectus.

In particular, since the road show provisions apply to investment dealers, the commenter felt that clarification regarding the conduct permitted for other participants in the offering, including the issuer, would be helpful.

36

Road shows -- adopting model based on U.S. rules

Three commenters expressly advocated a model for regulating road shows similar to the U.S.

See response to item 7.

As noted below, other commenters wanted the CSA to harmonize certain differences in the proposed Canadian rules on road shows with the U.S. model.

For example, one commenter noted that proposed section 6.13 of 41-101CP refers to the fact that U.S. rules require the filing of internet road show materials with the SEC or that they be made "available without restriction by means of graphic communication". In order to maintain an approach consistent to that adopted under the U.S. rules, the commenter suggested that issuers be permitted to either file the materials from internet road shows on SEDAR or make them available without restriction through other internet outlets.

37

Road shows -- definition of retail investor

One commenter submitted that since the proposals draw a distinction between road shows for institutional investors and road shows for retail investors, the term "retail investor" should be defined.

We have revised the rule amendments and policy changes to include standard provisions for road shows that apply to all types of investors (i.e., institutional, accredited or retail). Accordingly, we do not believe that there is a need to define the term "retail investor".

38

Road shows -- authorization

One commenter had the following comments on the proposed rules requiring that an issuer provide written authorization to the investment dealer to conduct a road show:

We have not retained the requirement that an issuer provide written authorization for an investment dealer to conduct a road show. However, a template version of any marketing materials provided in connection with a road show must be approved in writing by the issuer before those marketing materials are provided to investors.

•

The commenter questioned whether this is necessary given that it is typically senior management (often the CEO, CFO and others) who present at a road show. The issuer's approval is therefore implicit in management's attendance with the lead underwriter(s) at the road show.

•

The requirement for written authorization does add an additional compliance obligation for the working group on a prospectus offering.

Civil liability for marketing materials used in connection with a road show

39

Road shows -- liability

One commenter strongly endorsed the approach of attaching civil liability to term sheets and written road show materials. The commenter submitted that:

We agree with the commenter that marketing materials used in connection with a road show should generally be subject to statutory civil liability. To achieve this, the rules provide that the template version of the marketing materials must be included or incorporated by reference in the final prospectus.

•

These materials can and do play a critical role in the marketing of securities to the public.

•

Because such materials do influence investor decisions, civil consequences should attach to misrepresentations that are contained in such materials.

•

The risk of civil liability will incentivize issuers and underwriters to ensure that the disclosures in such documents are not materially misleading.

Another commenter was concerned that marketing efforts sometimes go beyond what is in a prospectus, but misrepresentations that are outside of the prospectus do not attract prospectus liability under local securities acts. The commenter submitted that:

We believe that this enhances investor protection.

•

It is very hard for investors to sue market participants who make misrepresentations during a road show unless those misrepresentations are also in the prospectus.

•

We expect issuers and investment dealers to be accountable to investors if they provide investors with marketing materials that contain a misrepresentation.

•

By way of example, in a recent prospectus offering by an issuer of income participating securities, a PowerPoint presentation used in the road show employed very aggressive and misleading language that did not appear in the prospectus.

•

In a prospectus offering, an investor may make an investment decision based on information in marketing materials used in connection with a road show.

•

As a result, the issuer and the underwriters were not liable for misrepresentations in that presentation under the prospectus liability provisions in local securities acts.

•

An investor who receives such materials may decide not to participate in the prospectus offering but may instead proceed to buy securities of the issuer in the secondary market on the basis of information in marketing materials. Accordingly, these materials should generally be subject to the secondary market civil liability provisions in securities legislation.

•

Consequently, local securities acts should be amended to impose liability for misrepresentations in any material efforts made in connection with a public offering.

However, comparables can be removed from the template version of the marketing materials that is filed on SEDAR, and the relevant prospectus need only include, or incorporate by reference, the template version of the marketing materials with the comparables removed. Accordingly, comparables will not be subject to civil liability. However, the rule amendments contain disclosure requirements and additional safeguards relating to comparables.

Statutory amendments

Amendments to local securities acts of the nature suggested by the commenter are beyond the scope of this project.

Information disclosed in prospectus

40

Road shows -- requirement that all information in a road show must also be included in the applicable prospectus

Two commenters had concerns with the proposed requirement that all information in a road show must also be disclosed in the applicable prospectus, with the exception of comparable company information (which may only be disclosed to permitted institutional investors). Comments received include the following:

The revised rule amendments provide that all information in marketing materials used in connection with a road show (other than contact information for the investment dealer and the underwriters and any comparables) must be disclosed in, or derived from, the prospectus. We believe that this furthers the policy objectives of equal access to information and investor protection through adequate disclosure of the proposed offering.

Material information

•

The proposed rule is very restrictive and requires that "all information" in the road show also be in the preliminary prospectus, rather than focusing only on material information.

•

The requirement should focus only on material information.

However, the rule amendments contain accommodations for prospectus offerings under the shelf procedures and the post-receipt pricing procedures. See response to item 32.

Verbal communications

•

This requirement would appear to apply not only to the written presentation material (e.g., slide decks) but to all verbal communications made during the presentation.

We have also included companion policy guidance in 41-101CP which indicates that marketing materials may include information derived from the prospectus and information that is presented in a manner that differs from the manner of presentation in the prospectus (see subsection 6.5B(5) of 41-101CP).

Verbal communications

•

It would not necessarily be helpful to investors, or aid in their protection, to prevent management from being able to answer questions during a road show simply because the answers go beyond what is contained in the preliminary prospectus.

In response to the comments about verbal communications, we have not retained the requirement that all information provided at a road show must be in the prospectus. However, any marketing materials provided at the road show must comply with the provisions relating to marketing materials.

•

In general, only material information in written road show materials should be required to be disclosed in the applicable prospectus. Otherwise, there would be a chilling effect on road shows -- requiring that the answer to every question be thoroughly scripted in advance and that questions go unanswered if there is any concern that the answer is not strictly within the text of the applicable prospectus. In the context of a road show, for which there are significant timing constraints, this would be impractical.

Other than a requirement to verbally read a statement at the beginning of a road show that investors other than accredited investors are permitted to attend, the rule amendments do not regulate oral statements made at a road show.

However, we do have regulatory concerns regarding oral statements made at road shows, and have included companion policy guidance in 41-101CP that describes these concerns (see subsection 6.12(7) of 41-101CP).

Nature of information provided

General market information and information about parent companies

•

The proposed rules permit a road show to summarize information from the prospectus or to include graphs or charts based on numbers in the prospectus. However, it would be preferable for the CSA to be more general in allowing road show materials to contain information derivable from the prospectus as well as general market information not specific to the issuer.

We disagree with the comments that general market information (e.g., interest rates, currency exchange rates, stock exchange indices) and information about the ultimate parent corporation of an issuer or a credit supporter contained in marketing materials should not be required to be in the relevant prospectus.

•

The CSA should also clarify that immaterial differences in the manner of presentation of the information from the prospectus would be permissible in a road show.

We believe that if an issuer or an investment dealer wishes to include information of this nature in marketing materials that are used in connection with a road show or otherwise provided to investors, they should disclose the information in the applicable prospectus. We have made certain accommodations for bought deals (see response to item 11) and offerings under the shelf and PREP procedures (see response to item 26).

•

In particular, the requirement should be clarified to confirm it is sufficient that information in a road show is derivable from the information in the prospectus and need not be verbatim.

Guaranteed securities

•

There are other technical concerns with the requirement that "all information" in a road show be disclosed in the prospectus. For example, certain Canadian issuers of guaranteed securities (typically debt securities) prepare a short form prospectus and incorporate by reference in the short form prospectus the U.S. public company filings of the credit supporter of the Canadian issuer. In many cases, the credit supporter is not the ultimate parent company of the Canadian issuer, but rather is the finance subsidiary of the ultimate parent company.

•

Road show materials used for offerings by these types of issuers may contain information about the ultimate parent company (since this is publicly available information) in addition to information about the credit supporter. This is because the financial performance of the parent company is also seen as relevant with respect to the securities of the Canadian issuer being offered. Under the proposed rules, this practice would be prohibited unless the information about the ultimate parent company is included or incorporated by reference in the prospectus of the Canadian issuer. This is not current market practice, and the CSA should consider changing the proposed rules to accommodate the practice of including parent company information in a road show in these circumstances.

Interaction with U.S. requirements

U.S. law and practice

•

This requirement represents a source of conflict with the U.S. model for road shows, as there is no such requirement under applicable U.S. rules.

See response to item 7.

•

This difference may arise by virtue of the liability regimes in Canada and the U.S.

•

In contrast with the Canadian prospectus regime, where disclosure must be part of the prospectus for statutory liability to attach, there are separate liability provisions under U.S. federal securities laws for disclosure outside of the registration statement that do not impose as strict a standard as the liability provision for misrepresentations in a registration statement.

•

Liability for road shows (and, more generally, information in free writing prospectuses) arises under these separate liability provisions under U.S. rules.

•

In a cross-border offering, the proposed rule amendments will require road show and other disclosures to be part of the Canadian prospectus. As a U.S. version of the prospectus will form part of the U.S. registration statement, the stricter U.S. standard of liability will apply.

•

While the proposed rule amendments contemplate an exception for "comparables" information, it is unlikely this exception will be broad enough to cover other market information not specific to the issuer that may be included in road shows (and other free writing prospectuses) but excluded from the U.S. registration statement.

•

It is not appropriate for an issuer to take strict liability for any such non-issuer information, given its nature, under applicable liability provisions for Canadian prospectuses or U.S. registration statements. This is information derived and available from other publicly available sources (including, among others, research reports) and is not material information specific to an issuer such that it should require prospectus level liability or disclosure.

•

Accordingly, the CSA should reconsider the types of information in road show materials and term sheets that must be included or incorporated, as applicable, in the preliminary and final prospectus for an offering.

Need for further consultations

Further consultations

•

The CSA should ensure that comments on this aspect of the proposed rules are received from a sufficiently representative sample of Canadian investment dealers and institutional investors before the CSA moves forward with implementation.

See response to item 8.

Fair, true and plain standard

41

Road shows -- fair, true and plain requirement

One commenter noted the proposed requirement that disclosure in a road show must be fair, true and plain. The commenter was concerned about the potential for disclosure with exaggerated claims, undefined assumptions, controversial back-testing practices, cleverly drawn and misleading charts, unsupported "facts", etc. The commenter asked what would happen if the disclosure was not accurate, true, up-to-date or complete and what kind of enforcement is contemplated or possible. The commenter asked if there would be independent review and approval of marketing materials by individuals at an investment dealer with appropriate authority and proficiency (e.g., chief compliance officer).

We have removed the fair, true and plain standard for disclosure at a road show. However, we have included companion policy guidance in 41-101CP indicating that disclosure at a road show, whether oral or written, is subject to the provisions of securities legislation which prohibit misleading or untrue statements.

Review and approval of marketing materials

•

We have not prescribed specific requirements regarding independent review and approval of marketing materials by individuals at an investment dealer.

•

Under the rules, marketing materials would have to be approved by the issuer and the lead underwriter in a prospectus offering. As a practical matter, we expect that marketing materials will normally be prepared by the lead underwriter and its counsel and vetted by the issuer and its counsel.

•

A member of the retail sales force at an investment dealer could not prepare marketing materials on their own.

Commenters favouring less strict requirements

42

Road shows -- reading of prescribed cautionary statement

Two commenters had concerns with the proposed rule that would require an investment dealer to verbally read a prescribed disclaimer at the commencement of every road show.

We have considered the comments and have revised the rule amendments to:

Comments received include the following:

•

shorten the prescribed statement, and

•

There are often multiple meetings with different investors on each road show date, such that the time for management to present in each meeting is limited (typically 20 to 30 minutes, excluding questions).

•

require that the prescribed statement, or a statement to the same effect, be read only when investors other than accredited investors are permitted to attend the road show.

•

The reading of the proposed disclaimer will take valuable time out of each meeting.

•

In light of these timing constraints, an investment dealer should have the option of including the disclaimer in written road show materials provided to attendees, rather than reading the disclaimer at the start of a road show.

•

Alternatively, the CSA should consider whether the disclaimer could be placed in the road show materials and referred to by the investment dealer without a full reading.

•

The rules should provide that the disclaimer used can be substantially to the effect of the prescribed language, rather than verbatim. Among other things, this would accommodate the use of equivalent language in cross-border offerings.

Commenters favouring stricter requirements

Cautionary language

In contrast, one commenter felt the oral reading of the disclaimer was not sufficient. He suggested that any documents distributed be prominently marked with suitable cautionary language and warnings.

All marketing materials (including marketing materials provided in connection with a road show) must contain a prescribed legend, or words to the same effect, which indicates (among other things) that:

•

The marketing materials do not provide full disclosure of all material facts relating to the securities being offered.

•

Investors should read the relevant prospectus for disclosure of those facts, especially risk factors relating to the securities offered, before making an investment decision.

Scope of rule amendments and policy changes

43

Road shows -- written materials

Five commenters noted that the proposed rules would prohibit an investment dealer from providing "written material" to an investor attending a road show, other than the preliminary prospectus and any amendment, unless the written material is treated as a term sheet under the proposed rules. This would mean filing the written material on SEDAR and including or incorporating by reference the written material in the prospectus.

We have revised the rule amendments and policy changes to:

Commenters seeking to restrict filing and other requirements

•

Remove the references to "written materials" throughout the road show provisions and refer instead to "marketing materials". Marketing materials provided in connection with a road show will be subject to the same requirements as any other marketing materials.

Three commenters sought to restrict filing and other requirements in relation to road show materials.

•

Clarify that the road show provisions apply to situations where an investor was shown marketing materials but not permitted to retain, or make a copy of, the materials. See response to item 12.

One commenter submitted that:

•

It is not clear what "written materials" will be subject to the new road show requirements.

We have also included companion policy guidance in 41-101CP relating to oral statements made at road shows.

Interaction with U.S. requirements

•

While the U.S. rules exclude any real time communications at a live road show (including slides or other visual aids available only as part of that road show) from what they refer to as "written communications", the CSA's commentary to the proposed rule amendments suggests the amendments would not provide a similar exclusion. Clarification is required on what constitutes written materials for purposes of these road show requirements.

See response to item 7.

•

Further, regardless of how "written materials" are construed, the proposed rule amendments will nonetheless conflict with equivalent U.S. rules because communications made as part of a road show need not be filed under these U.S. rules, regardless of whether they are written or oral communications.

•

In contrast, the proposed rule amendments will require filing all written materials provided in a road show.

•

While the U.S. rules could require the filing of road show materials for an electronic road show (as this would constitute a "written communication") for an initial public offering of common or convertible equity, no filing is required where the issuer makes at least one version of a bona fide electronic road show available without restriction.

•

In these circumstances, the typical approach in the U.S. is to make such a bona fide electronic road show available rather than file the road show materials.

•

The restricted access provisions of the proposed rule amendments would not permit this option in a cross-border IPO.

•

To be a bona fide version under the U.S. rules, a road show must include discussion of the same general areas of information as the other road shows for the same offering (to the extent those other road shows are written communications), but need not address all of the same subjects or provide the same information as those other road shows.

•

Accordingly, while a bona fide version under the U.S. rules could exclude information that compares the issuer to other issuers (with respect to multiples or other valuation metrics), it could also exclude further information provided at other road shows for the same offering.

•

In light of the above conflicts, the CSA should reconsider the circumstances in which road show materials must be filed and the types of road show materials that must be filed. In particular, instead of the road show requirements in the proposed rule amendments, the CSA should adopt a model similar to that of the U.S.

•

However, if the CSA ultimately determines that road show materials must be filed in certain circumstances (such as in the case of an IPO), the filing requirement should at least maintain some consistency with U.S. practice. Among other things, this might be achieved by requiring that only one bona fide version of those road show materials be filed.

Similarly, another commenter also believed it is unclear whether a slide deck for a road show would always need to be filed on SEDAR and included or incorporated in the prospectus. The commenter submitted that:

•

It is not clear whether the filing requirement applies when investors are shown the written material but are not allowed to keep a copy of it. For example, a road show slide deck may be shown on screen during an in-person meeting, or handed out for viewing only during the meeting with all copies collected afterwards, or presented through the internet in a format that does not allow for printing or downloading.

•

Written road show materials such as a slide deck should be filed on SEDAR and otherwise treated like a term sheet only if they are being provided in a form that can be retained by investors, and not when they are merely being shown to investors.

•

The practice in the U.S. is for dealers to take back from investors any hard copies of slide decks distributed during a road show presentation.

•

It is unclear why written materials such as a road show slide deck should be filed on SEDAR and otherwise treated like a term sheet if they are being provided in a form that cannot be retained by investors.

•

Road show materials are rarely, if ever, filed on EDGAR in the U.S.

In like manner, another commenter noted that the proposed guidance regarding road shows for cross-border IPO offerings suggests that the obligation to file road show materials may extend to road show presentations that are displayed, but not distributed to the attendees. If this is intended, the commenter suggested that:

•

Further guidance or clarification should be provided.

•

If no materials are distributed in a form that can be retained by the attendees, it is not clear that there is any rationale for the term sheet provisions to apply.

Commenters seeking to expand filing and other requirements

In contrast to the above comments, two commenters sought to expand filing and other requirements in relation to road show materials.

In particular, the commenters submitted that "written materials" should include electronic files or slide shows made available to investors on the internet, social media or by other electronic means.

44

Road shows -- French translation of written materials

One commenter assumed that written road show materials would not need to be translated into French in order to comply with French language requirements in the province of Québec (since written road show materials do not constitute a prospectus), unless those materials are provided in a form that can be retained by investors, in which case they would be treated as a term sheet under the proposed rules and would need to be included or incorporated by reference in the prospectus.

See response to item 28.

45

Road shows -- documents to be filed with prospectus

One commenter noted that the proposed changes to the rule provisions dealing with the documents to be filed with a prospectus (sections 9.1 and 9.2 of NI 41-101 and sections 4.1 and 4.2 of NI 44-101) only expressly address the filing of term sheets, but not road show materials. The commenter believes the provisions should expressly address the filing of road show materials.

We have revised the rule amendments and policy changes to remove the term "road show materials". Marketing materials provided during a road show will be subject to the same requirements as any other marketing materials, including the filing requirement.

Commenters in favour of civil liability for comparables

46

Road shows -- comparables -- civil liability

One commenter was in favour of civil liability for comparables included in road show materials.

We have revised the rule amendments to allow for comparables to be provided to any investor.

However:

The commenter did not see a clear justification for not attaching civil liability to information in road show materials provided to permitted institutional investors that compares the issuer to other issuers (comparables). The commenter submitted that:

•

comparables can be removed from the version of marketing materials used in connection with a road show that is filed on SEDAR, and

•

This distinction unfairly places the burden on such investors to verify the accuracy of the comparables, rather than requiring the issuer to ensure that the disclosure is fair, true and plain, failing which liability will attach.

•

the relevant prospectus need only include, or incorporate by reference, the version of the marketing materials with the comparables removed.

•

Under the proposed rules, to the extent that comparables were disclosed to retail investors, they would attract civil liability. The commenter did not see a clear basis for making the civil liability provisions available to retail investors in respect of comparables, but not to permitted institutional investors.

Accordingly, comparables will not be subject to statutory civil liability. Issuers will, however, be required to confidentially deliver the complete version of the marketing materials on SEDAR.

The rule amendments also provide additional disclosure requirements and other safeguards relating to comparables. Additionally, we have included companion policy guidance in 41-101CP indicating that any comparables included in marketing materials provided to an investor will be subject to the provisions in applicable securities legislation which prohibit misleading or untrue statements.

Commenters opposed to civil liability for comparables

In contrast, three commenters were opposed to civil liability for comparables.

In particular, one commenter disagreed with the proposal that road shows for retail investors should not include comparables in the absence of prospectus liability. The commenter submitted that:

•

Comparables are not material information about an issuer that should require prospectus disclosure.

•

Comparables are based on publicly available information for which liability is not appropriate.

•

Reliance should be placed on the underwriters and the market to select appropriate methods of selection of comparables.

In like manner, another commenter believes that dealers should be able to choose to provide comparables in marketing materials to all potential investors and to redact such comparables from the marketing materials prior to filing on SEDAR. The commenter submitted that:

•

The valuation metrics for other issuers provides context, but are not material facts as regards the securities of the issuer.

•

This conclusion is supported by the proposed differential treatment of retail investors.

Because the information is derived from publicly available sources, another commenter believes that issuers should not be mandated to include in their prospectus any comparables and other publicly available market information included in written road show materials and other term sheets.

Road show attendees

47

Road shows -- attendance

Three commenters noted that the proposed rules would only allow investors, registered individuals and representatives of the issuer to attend a road show.

We have revised the rule amendments to remove the restriction on road show attendees. However, we refer to the guidance in subsection 6.12(6) of 41-101CP.

Comments received include the following:

Media attendance at road shows

•

One commenter acknowledged the CSA's concern with members of the media attending a road show.

The revised rule amendments would allow members of the media to attend road shows in their capacity as members of the media. However, we have included companion policy guidance in 41-101CP which sets out our regulatory concerns (see subsection 6.12(2) of 41-101CP).

•

It would be appropriate to expand the list of permitted attendees at a road show to include:

•

other members of the working group for a prospectus offering, such as representatives of the underwriters, legal counsel, any road show consulting firms engaged by the issuer, etc., and

•

representatives of the portfolio manager or other registrant representing an institutional investor.

Minimum retention period

48

Road shows -- restricted access

One commenter noted the requirement that an investment dealer must establish and follow reasonable procedures to keep a written record of any investor attending a road show in person, by telephone conference call, on the internet or by other electronic means. The commenter questioned the ability to validate identity for road shows held by conference calls or by webinar or similar web technology. The commenter suggested that the rules provide for a minimum retention period for attendance records for road shows.

We have not specified a minimum retention period. We expect investment dealers to determine an appropriate retention period for records of the nature referred to by the commenter in accordance with any applicable laws.

Validation of identity

The revised rules now provide that the investment dealer must establish and follow reasonable procedures to ask any investor attending the road show in person, by telephone conference call, on the internet or by other electronic means to provide their name and contact information. For example, see subsection 13.10(3) of NI 41-101.

Comments from commenters worried about litigation

Interaction with U.S. requirements

See response to item 7.

49

Road shows -- cross-border offerings

Three commenters were concerned that the new road show requirements will create a significant impediment for Canada/U.S. cross-border IPOs.

As indicated in the revised companion policy guidance in 41-101CP, due to the road show provisions and exceptions for certain U.S. cross-border offerings set out in the rule amendments, we do not anticipate a further need for relief of the nature referred to by the commenters and instead expect such issuers to comply with the applicable road show provisions.

One commenter submitted that:

•

In respect of road shows, the CSA should adopt a model similar to the U.S., which provides equal access to institutional and retail investors. Under this regime, either (i) road shows are open to everyone or (ii) the road show presentation must be filed on EDGAR as a free writing prospectus.

•

Under the U.S. rules, if the materials are not filed on EDGAR (which appears to be the common practice), the road show materials must be "made generally available without restriction" through electronic means.

•

In U.S. practice, access is limited to viewing only, with no capability to print or download the content or access it after the viewing period expires.

•

These U.S. rules have led to the need for regulatory relief in Canada on cross-border marketed offerings (e.g., IPOs) because the Canadian rules currently do not permit an electronic road show to be open to all investors, and there is a preliminary prospectus delivery obligation prior to the road show.

•

If, under the proposed CSA rules, road show material is required to be filed on SEDAR in Canada, the result is that the materials would also have to be filed on EDGAR as well for cross-border road shows. This represents a significant change from current U.S. practice, and could create a disincentive for firms to offer cross-border IPOs.

•

A regime consistent with the U.S. model would adequately protect investors, and avoid the need for regulatory relief on cross-border offerings.

Another commenter submitted that:

•

It is not clear whether the proposed rules would require written road show materials to be filed on SEDAR. The proposed companion policy provisions discussing road shows for cross-border IPOs appear to be premised on the assumption that this means that an electronic road show will constitute "road show materials" that must be filed on SEDAR, even if the content cannot be downloaded or printed.

•

The proposed companion policy guidance suggests that cross-border IPO issuers will no longer be required to apply for the type of exemptive relief previously granted in Canada for cross-border IPOs (and such relief will no longer be granted absent unusual circumstances) because issuers will be able to file on SEDAR the same road show materials that they are permitted to file on EDGAR.

•

As the proposed companion policy points out, in the case of an internet road show for an IPO, the U.S. requirement is that road show materials either be filed on EDGAR or be "made generally available without restriction" through electronic means. The CSA appears to be under the impression that road show materials are typically filed on EDGAR in the U.S., and that the need for the previously granted exemptive relief stemmed from a concern that the public availability of the road show materials on EDGAR would violate Canadian marketing restrictions, as the SEC's EDGAR website is available worldwide, including to Canadian investors.

•

In fact, road show materials are rarely, if ever, filed on EDGAR. U.S. underwriters typically insist on making a bona fide version of the road show available to the public without restriction for the express purpose of avoiding the alternative requirement to file the road show on EDGAR.

•

Although the commenter understands a number of commercial services allow investors in the U.S. (and elsewhere, including Canada) to view the road show, access is always limited to viewing only, with no capability for investors (or others) to print or download the content, or access it after the permitted viewing period expires.

Two of these commenters submitted that:

•

U.S. underwriters are generally concerned that they would be subject to a significantly higher risk of frivolous and ultimately unmeritorious lawsuits being brought against them and the issuer by the active U.S. plaintiff securities litigation bar if a record of the contents of the road show slides and script is made permanently available on EDGAR.

•

Any road show materials that are required to be filed on SEDAR in Canada will also be permanently available to the U.S. securities class action bar, and the commenters anticipate that U.S. underwriters would raise the same concerns about that result in the context of a cross-border IPO. Further, because the proposed rules will still require restricting access to electronic road shows in Canada (even if only for the purpose of verifying the identity of the viewers), the U.S. rules will require that a bona fide version of the road show must also be filed on EDGAR. The result will be a significant change from current U.S. IPO practice.

•

The commenters were concerned that this change from current practice may create a disincentive for IPOs to be conducted on a cross-border basis. The commenters anticipate that U.S. issuers and underwriters will be reluctant to participate in a cross-border IPO unless road show content which is protected from downloading and printing is exempt from any SEDAR filing requirement, and the CSA continues to provide exemptive relief to allow unrestricted access to such road shows in Canada so that they may continue to be exempt from the SEC's EDGAR filing requirements.

One of these commenters was strongly opposed to any measures that would curtail demand for cross-border IPOs and secondary offerings, particularly given the weak environment for Canadian offerings. In order to reflect current U.S. IPO practices, the commenter recommended exempting road show materials from any SEDAR filing requirement and continuing to allow unrestricted access to road show materials in Canada so that they may continue to be exempted from EDGAR filing requirements in the U.S.

50

Road shows -- distinction between institutional investors and retail investors

One commenter disagrees with the proposed rules which differentiate between retail and institutional investors in respect of the information that may be provided to them concerning a prospectus offering. The commenter submitted that:

We have revised the rule amendments and policy changes to include standard provisions for road shows that apply for all types of investors (i.e., institutional, accredited or retail).

•

This distinction is inconsistent with the principle that the prospectus must contain full, true and plain disclosure of all of the material facts relating to the securities offered.

•

Any investor that is eligible to participate in an offering should have an equal opportunity to receive any disclosure provided.

51

Road shows -- protections for retail investors

One commenter believes that the "know your client" and suitability obligations should apply in respect of any retail investor invited to a road show. In particular, the commenter believes that an investment dealer should only invite a retail investor to a road show if the potential investment is suitable for that investor.

We have considered the comment, and believe that this is outside the scope of this project.

The commenter believes that senior citizens are particularly vulnerable to road shows. The commenter was concerned that senior citizens may feel obligated to honour any indications of interest based on disclosures that may subsequently materially change.

However, we note that 41-101CP provides guidance indicating that unless an exemption from the requirement to register as a dealer is available in the circumstances, an investment dealer would have to be registered as an investment dealer in any jurisdiction where it conducts a road show (see subsection 6.12(6) of 41-101CP). An investment dealer would be required to ensure that a proposed trade is suitable for a client before making a recommendation in accordance with the relevant securities legislation and rules of the Investment Industry Regulatory Organization of Canada.

52

Road shows during the waiting period -- drafting comments

One commenter had the following drafting comments on the following proposed provisions of NI 41-101:

Other than a requirement to verbally read a statement at the beginning of the road show that investors other than accredited investors are permitted to attend, the revised rule amendments do not regulate oral statements made at a road show. See response to item 40.

Paragraphs 13.8(1)(c) and 13.9(1)(c)

•

The information in the road show should be limited to "written" information and should relate not only to the securities but also to the issuer.

•

Accordingly, delete the phrase "all information in the road show concerning the securities is disclosed in the preliminary prospectus" and replace it with "all written information in the road show concerning the securities or the issuer is disclosed in the preliminary prospectus".

The revised road show provisions require that an investment dealer must establish and follow reasonable procedures to provide the investor with a copy of the relevant prospectus. We do not believe this requirement to be onerous. For a road show held on the internet or other electronic means, recommended procedures are set out in section 2.7 of NP 47-201.

Paragraph 13.8(3)(b)

•

It should be sufficient if the permitted institutional investor has access to a copy of the preliminary prospectus or any amendment, rather than requiring that it actually has received these documents.

Liability of syndicate

53

Term sheets and road shows -- liability of co-managers in an underwriting syndicate

One commenter was concerned about the effect of the proposed rule amendments and policy changes relating to term sheets and road shows on the potential liability of co-managers in an underwriting syndicate. The commenter believes these liability ramifications have the potential to negatively impact underwriting syndicate participation, and ultimately, an issuer's access to the capital markets.

We have considered the comments and have concluded that all underwriters in a syndicate should be liable for misrepresentations in marketing materials. We believe that this furthers investor protection and is consistent with the statutory regime for civil prospectus liability.

Background

By way of background, the commenter noted that:

We recognize that in an underwriting syndicate, the lead underwriter will be primarily responsible for working with the issuer in preparing documents relating to the offering, and that other underwriters may join the syndicate after initial marketing materials have already been prepared and distributed. However, we do not believe that the rule amendments impose an unfair burden on syndicate members. In particular, we note that:

•

Under the proposed rule amendments, investment dealers will, subject to certain conditions, be permitted to provide a term sheet to a permitted institutional investor after announcing a bought deal, but before filing the preliminary prospectus four business days later.

•

No underwriter will be liable under the statutory provisions for civil prospectus liability until the time of the final prospectus.

•

The proposed rule amendments will contain provisions governing (i) road shows carried out during the waiting period following the filing of the preliminary prospectus, and (ii) the related road show materials.

•

If a prospectus (or amendment) modifies a statement of material fact that appeared in earlier marketing materials, blacklined copies of the materials must be filed on SEDAR at the same time as the prospectus (or amendment).

•

Term sheets and road show materials would be subject to prospectus liability (statutory liability for misrepresentations).

The commenter made the following submissions:

Accordingly, before a final prospectus is filed, members of the underwriting syndicate will have the opportunity to request that the lead underwriter and issuer modify any statements in earlier marketing materials that they have concerns with.

Syndication process

•

The new provisions will increase the administrative burden on the issuer and underwriters in connection with any corporate finance transaction, and more importantly, do not take into consideration some of the practical issues that underwriters face on a day-to-day basis in their equity underwriting business.

•

The provisions are inconsistent with the realities of the syndication process for any public offering in the Canadian market, in that they fail to take into account the fact that co-managers in an underwriting syndicate have no control or input over the form, substance or dissemination of ancillary documentation.

•

There are some instances where an investment dealer is the lead bookrunner with respect to a bought deal or marketed offering. In those instances, the lead bookrunner works hand-in-hand with the issuer and has full control over the form, content and dissemination of all disclosure documents from their inception.

•

Specifically, the lead bookrunner will provide input on the bought deal news release, the preliminary prospectus, and the final prospectus in order to ensure compliance with applicable securities laws.

•

The situation is very different in the case of offerings where an investment dealer is not a bookrunner (i.e., where the dealer is a "co-manager" in the syndicate).

•

An underwriter who is a co-manager will commonly receive an invitation to participate in an offering considerably later than when the bookrunners were first involved -- in some cases, as late as shortly before the filing of the preliminary prospectus.

Bought deals

•

In the bought deal context, the bookrunner may have had several days to familiarize itself with the issuer, its intentions, and the details of the offering, while co-managers are required to bring themselves up to speed under extremely tight timing constraints.

•

In these situations, the only disclosure document that co-managers are provided with is the preliminary prospectus, and it is a perpetual challenge for the co-managers to review and sign off on even this document before it is disseminated.

•

More significantly, given the late stage at which co-managers are asked to join a bought deal syndicate, they generally have no input or authorship over the drafting of the issuer's press release announcing the offering.

•

For this reason, the commenter is partial to the customary form that such news releases take -- i.e., very abbreviated and general disclosure regarding the nature of the offering, terms of the securities and use of proceeds.

Term sheets

•

If the term sheet provisions are adopted, then, in transactions where a dealer is a co-manager, the co-manager will not have (or be granted) the opportunity to review or comment on term sheets before they are distributed.

•

As a result, co-managers will not have an adequate opportunity to determine whether the disclosure in the term sheet is, in fact, fair, true and plain, as required pursuant to the proposed rule amendments.

•

Ascribing prospectus-level liability to the co-managers for a term sheet that only the bookrunners have drafted and/or reviewed and distributed unfairly penalizes the co-managers in any offering.

•

The realities of the syndication and distribution process dictate that the co-managers will not have had an opportunity to vet such a term sheet prior to its dissemination.

Definition of marketing materials

Definition of term sheet

See response to item 11.

•

This issue will be exacerbated by the broad definition of "term sheet" in the proposed rule amendments, which includes any "written communication regarding a distribution of securities under a prospectus that contains information on the issuer or the securities" other than "a prospectus, or a notice, circular, advertisement, letter or other communication referred to in section 13.1 that is expressly permitted by securities legislation".

We refer to the revised definition of "marketing materials", which now refers to "a written communication intended for potential investors". This would not capture routine emails between underwriters.

•

Arguably, this could include any email or ancillary communication from the lead bookrunners, none of which the co-managing underwriters will have an opportunity to review, but with respect to which each underwriter will have prospectus-level liability.

•

The explicit adoption of the term sheet provisions may tempt bookrunners to provide a more in-depth description of the terms of the offering than one would currently find in a generic bought deal news release.

•

A detailed description of any securities offering belongs in the prospectus, where it can be properly described and (if necessary) qualified. Explicitly allowing dealers to provide an initial "snapshot" of the offering in term sheet format increases the propensity for errors or omissions in such a description, especially for complex offerings where either the terms of the securities or the use of proceeds are novel or non-conventional.

•

This disproportionately penalizes the co-managers, who did not draft the term sheet or comment on it before it was issued, yet bear prospectus-level liability along with the syndicate as a whole.

Road shows

•

The issues regarding co-manager liability are even more pronounced with respect to the road show provisions contained in the proposed rule amendments.

•

In those offerings where a dealer is a co-manager, the co-manager has no input over road show materials, and in many cases, is not even provided with these materials prior to their use in the road show itself.

•

In actuality, as a co-manager, it would not be customary for a dealer to participate in the bookrunners' road show process.

•

Based on customary marketing and syndication practices, co-managers will not have (or be granted) the opportunity to determine whether all information contained in the road show is (i) contained in the preliminary prospectus or (ii) fair, true and plain.

•

Ascribing prospectus-level liability to road show materials penalizes the co-managers of any public offering disproportionately and unjustifiably.

•

This concern is exacerbated by the use of the generic term "written materials" in proposed sections 13.8 and 13.9 of NI 41-101, which could arguably include email or other ancillary communications, none of which the co-managing underwriters will have any input on (or even be aware of).

Fully marketed offerings

•

Identical arguments to those set forth above hold true with respect to any term sheet that a bookrunner may choose to distribute following the filing of the preliminary prospectus in a fully marketed offering (e.g., an IPO).

Effect on Canadian capital markets

•

The syndication mechanics described above reflect the processes that have traditionally been in place for any Canadian capital markets offering.

•

If the proposed rule amendments were to be adopted, it's unlikely that these processes would change in any material respect to address the concerns set forth above.

•

In the U.S., the much larger number of investment dealers gives issuers flexibility in determining which dealers participate in their offering syndicate. In the Canadian context, the selection is far more limited.

•

There are fewer investment dealers in Canada, and to complete any mid to large sized offering in the Canadian capital markets, an issuer often requires the majority of dealers in the country to participate in the syndicate.

•

For the same reasons, investment dealers do not always have the same commercial flexibility to "take a pass" on the limited number of larger offerings that are undertaken in the Canadian market simply because they are not comfortable with the disclosure practices adopted by the lead bookrunners on that transaction.

•

Nevertheless, if the term sheet and road show provisions are adopted, underwriters may be dissuaded from participating in a syndicate as co-managers if they are forced to take on prospectus-level liability on ancillary documents with respect to which they customarily have no input or involvement.

•

The risk of incurring this additional liability may affect an underwriter's willingness to join certain underwriting syndicates, which, in the Canadian context, could ultimately impact the issuer's unbridled access to capital markets financing.

Bifurcated liability

•

In the event that the CSA chooses to move forward with the proposed rule amendments, the CSA should consider amending the road show and term sheet provisions so that prospectus-level liability for misrepresentations in these materials is bifurcated -- i.e., only those investment dealers that were bookrunners for the transaction in question, and therefore directly involved from the outset of the offering in the drafting, review, and dissemination of term sheets and road show materials, should be subject to statutory liability for a misrepresentation in such documents.

•

Such a construct would accurately reflect the syndication realities of the offering process, and involvement (or lack thereof) of underwriters in reviewing ancillary documentation based on their syndicate position.

Form 41-101F1 Information Required in a Prospectus

Form 41-101F2 Information Required in an Investment Fund Prospectus

54

Term sheets incorporated by reference

One commenter noted that the proposed amendments to Form 41-101F1 and Form 41-101F2 expressly address the inclusion in, or incorporation by reference into, the prospectus of term sheets, but not road show materials. The commenter believes the prospectus form should expressly address road show materials.

We have revised the road show provisions to refer only to marketing materials, rather than to distinguish between marketing materials and other materials provided at a road show. Marketing materials provided in connection with a road show are subject to the same requirements as any other marketing materials. Accordingly, the amendments to Form 41-101F1 address the inclusion in, or incorporation by reference into, the prospectus of marketing materials used in connection with a road show.

As noted in the response to item 5, we have decided that the pre-marketing and marketing reforms in NI 41-101 will not apply to investment funds filing a prospectus in the form of Form 41-101F2. As a result, we have not made the same revisions to Form 41-101F2 that we have made to Form 41-101F1.

Companion Policy 41-101CP General Prospectus Requirements

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CP guidance -- subsection 6.2(9) -- interaction with prospectus exemptions

One commenter referred to IIROC Rule 29.13 on pre-marketing and the notice that IIROC issued on May 1, 2007 regarding compliance with that rule (the IIROC Pre-Marketing Notice). The commenter submitted that:

We have reviewed IIROC Rule 29.13 on pre-marketing and the notice issued by IIROC on May 1, 2007 regarding compliance with that Rule. We do not believe that there is a need for additional guidance, as the guidance currently provided in subsection 6.2(10) of 41-101CP states that "[f]rom the time when it is reasonable for a dealer to expect that a bona fide exempt distribution will be abandoned in favour of a prospectus offering, the general rules relating to advertising or marketing activities that constitute an act in furtherance of a distribution will apply."

•

An issue that has arisen in the past and for which there does not appear to be sufficient clarity is the application of the pre-marketing rules in a situation where there is an attempt to effect a financing by way of private placement that is abandoned and a public offering is proceeded with.

•

Section 3 of the IIROC Pre-Marketing Notice contemplates the situation where a bona fide intention to affect an exempt distribution is abandoned in favour of a prospectus offering.

•

In particular, section 3 of the IIROC Pre-Marketing Notice states that it is not until it is reasonable to expect that a bona fide exempt distribution will be abandoned, that any subsequent pre-marketing activities will be subject to IIROC Rule 29.13 on pre-marketing activities.

•

Given the uncertainty that arises in this context, the CSA should consider taking this opportunity to clarify the issue by adopting the principles enunciated in the IIROC Pre-Marketing Notice.

Opposition to revised guidance

56

CP guidance -- sufficient specificity

One commenter was of the view that the changes to subsection 6.4(4) of 41-101CP regarding "sufficient specificity" should not be made. The commenter believes that the existing guidance in the Companion Policy on when a distribution of securities commences is clear to investment dealers.

We have not revised the changes to 41-101CP in response to these comments. We believe that there is a lack of clarity among some market participants regarding when sufficient specificity occurs and the proposed guidance is intended to assist marketing participants in this regard.

When "sufficient specificity" occurs

Three commenters referred to the existing guidance in subsection 6.4(4) of 41-101CP. That provision states:

"We consider that a distribution of securities commences at the time when:

•

a dealer has had discussions with an issuer or a selling securityholder, or with another dealer that has had discussions with an issuer or a selling securityholder about the distribution, and

•

those distribution discussions are of sufficient specificity that it is reasonable to expect that the dealer (alone or together with other dealers) will propose to the issuer or the selling securityholder an underwriting of the securities."

One commenter agreed that guidance on "sufficient specificity" is useful in developing a more consistent and predictable practice. However, the commenter believed the language in the above provision presents some practical difficulties. The commenter submitted that:

We are of the view that a mutual intent between an issuer and a dealer is not necessary in order for "sufficient specificity" to occur. Accordingly, we have not revised the existing guidance in subsection 6.4(4) of 41-101CP as requested by certain commenters.

•

In order to establish a mutual intent to conduct an offering, a dealer may have to make several proposals before it is reasonable to conclude that an issuer will undertake an underwriting.

•

Until there is a mutual bona fide intention on the part of both the issuer and dealer to conduct a public distribution, it would be premature to declare that the distribution has commenced.

•

The trigger point may occur earlier than the date of the engagement letter or bought deal agreement. However, the guidance should reflect the reality that there are two parties involved in making the determination to conduct a public offering. As such, the trigger for a distribution should hinge on whether it is reasonable that a dealer will undertake a distribution based on discussions with the issuer.

One commenter was of the view that the existing and proposed guidance on "sufficient specificity' is not adequately flexible. The commenter noted that the proposed guidance specifically provides that CSA staff do not agree that a distribution does not commence until a later time (e.g., when an engagement letter is delivered to an issuer). The commenter submitted that:

•

IIROC guidance for compliance with IIROC Rule 29.13 states that "At the latest, [a distribution] will have commenced at the time the offer to underwrite is made to the issuer".

•

There should be mutuality of discussions (i.e., an intention of both the dealer and the issuer to proceed). The commenter noted that the proposed guidance gives two examples. While the first example does anticipate issuer approval, the second example refers to a situation where no indication of price range or other terms would have been given by the underwriter to the issuer and therefore there is no intention of the issuer to necessarily proceed.

•

The guidance should be revised to reflect these concerns.

Similarly, although generally opposed to revising this guidance, another commenter indicated that, if a change is made, it would support language that provides that "there must be a bona fide intention on the part of both the dealer and the issuer to engage in the public distribution of securities". The commenter's issue with the language is that a distribution may commence if the intention is only with the dealer.

Specific examples

One commenter was concerned about the consequences of the statement in the proposed guidance, which discusses situations where an issuer rejects a proposed engagement letter or proposal for an underwriting from a dealer. The proposed guidance states:

"Similarly we do not agree with the interpretations that if an issuer rejects a proposed engagement letter or proposal for an underwriting from a dealer, the "distribution" has ended and the dealer could immediately resume communications with potential investors concerning their interest in purchasing securities [UND]of[/UND] the issuer. In these situations, we expect the dealer not to resume communications with potential investors until after a "cooling off" period." (emphasis added)

The commenter submitted that:

We have revised the guidance as recommended by the commenter.

•

The use of the word "of" as highlighted in the above provision is problematic in that it may be interpreted to apply to securities traded in the secondary market, rather than those to be distributed pursuant to a prospectus distribution.

•

This would result in significant negative consequences for the issuer as it could curtail secondary market trading by a dealer or group of dealers.

•

The word "of" in this provision should be changed to "from" to provide clarity of the intention.

57

CP guidance -- non-deal road shows

One commenter had comments on the guidance on non-deal road shows in the last paragraph of proposed subsection 6.4(b) of 41-101CP. The commenter submitted that:

We have considered the comment. However, we don't propose to proceed, at this time, with a legislative safe harbour for non-deal road shows.

•

The phrase "if such a non-deal road show was undertaken in anticipation of a prospectus offering" may in some cases cause interpretation issues (i.e., exactly what "in anticipation of a prospectus offering" means).

•

It may be helpful to provide a safe harbour which would provide that a road show would be a "non-deal road show" if a specified period has elapsed since the road show prior to commencement of the prospectus offering.

58

CP guidance -- testing of the waters exemption -- IPO issuers

One commenter noted that the guidance in proposed subsection 6.4A(5) of 41-101CP contained a sample email that an investment dealer could use when soliciting expressions of interest in accordance with the proposed testing of the waters exemption. The commenter suggested that the last bullet of the sample email be modified to read as follows: "you agree to keep the information confidential until it is otherwise in the public domain".

While we have not made the specific change recommended by the commenter, we have revised the amendments to NI 41-101 to require that any investor solicited under the testing of the waters exemption for IPO issuers confirm in writing that it will keep information about the proposed offering confidential until:

•

the information is generally disclosed, or

•

the issuer confirms that it will not be proceeding with the offering.

Fair, true and plain standard

59

CP guidance -- term sheets -- fair, true and plain requirement

With respect to the proposed rule that any term sheet be "fair, true and plain", two commenters noted the proposed companion policy guidance that a term sheet would be "fair true and plain" if:

See response to item 29, which applies to all marketing materials (including marketing materials provided in connection with a road show).

•

it is honest, impartial, balanced and not misleading,

Guidance on marketing materials

•

it does not give undue prominence to a particular fact or statement in the prospectus (or, in the case of a term sheet under subsection 7.5(1) of NI 44-101, a document referred to in paragraph 7.5(1)(d) of NI 44-101), and

We have also revised the guidance in 41-101CP to address some of the concerns expressed by the commenters. For instance:

•

it does not contain promotional language.

•

We have removed the statement that marketing materials should not give undue prominence to a particular fact or statement.

•

We have removed the guidance relating to promotional language.

•

Instead, we have included guidance in 41-101CP indicating that as marketing materials are subject to statutory prohibitions against misleading or untrue statements, issuers and investment dealers should have a reasonable, factual basis for any statement that is included in marketing materials.

One commenter submitted that:

•

This guidance is impractical as currently drafted.

•

By their nature, marketing materials are for marketing. They are not, as is recognized, full disclosure, but rather would be limited to key selling features, the issuer's purported positive attributes and financial highlights.

Road shows

•

In creating this summary, it would be open to question whether the facts in the summary are given undue prominence, if for no other reason than simply because it is a summary only.

Other than a requirement to verbally read a statement at the beginning of the road show, the revised rule amendments do not regulate oral statements made at a road show. See response to item 40.

•

Similarly, this guidance assumes that prominence itself can be assessed. Does it relate to its location in the term sheet? Does it relate to the manner in which selected information is summarized in the term sheet? Does it relate to which line items are included in a financial summary in the term sheet? Too much uncertainty results from this guidance.

•

Further, as each potential investor receives a prospectus from which the information comes, it is uncertain what "undue" prominence means in the context of the complete package of documents being given to the investor (or why it should matter).

•

The "prohibition" on promotional language is potentially problematic as well. A prospectus for a marketed offering will often contain promotional language -- in addition to a liability document, the prospectus is a selling document, as are other marketing materials, used to encourage and facilitate the sale of the securities being offered.

•

Promotional language should not contain untruths or misrepresentations, but should not otherwise be prohibited.

•

To suggest that promotional language that is in a prospectus could not be used in written marketing materials is difficult to understand. The commenter suggested that this cannot be the intention.

•

Written marketing materials do not need this additional guidance given that statutory liability for misrepresentations attaches to these documents. Investment dealers are familiar with the concept of misrepresentation. The overall prospectus liability regime should meet any investor protection concerns.

•

The guidance should simply remind issuers of this fact, including the second branch of the definition of "misrepresentation" in applicable securities legislation regarding omissions of material facts necessary to make a statement not misleading in the context in which the statements are made.

Another commenter was particularly concerned with the proposed guidance that a term sheet would be "fair, true and plain" if it does not contain promotional language. The commenter submitted that:

•

Under the proposed rule amendments, this same standard would apply to road show materials.

•

While potentially an issue for all term sheets, this is clearly problematic for road show materials which, by their very nature, are to promote interest in the securities being offered. This is true of all marketing materials, including the prospectus.

•

The CSA should remove this prohibition on promotional language.

•

More generally, the proposed paragraph 13.8(1)(b) of NI 41-101 and equivalent paragraphs of the rule amendments would apply the fair, true and plain standard to all "disclosure in the road show", rather than limiting its application to written materials. It is unclear how this could be applied in practice. Accordingly, these paragraphs should be removed.

60

CP guidance -- news release before filing a preliminary prospectus

One commenter noted the guidance in proposed subsection 6.9(3) of 41-101CP which attempts to clarify what may be in a news release or material change report filed before the filing of a preliminary prospectus or the announcement of a bought deal and limits the information to identifying the securities proposed to be issued without a summary of commercial features of the issue. The commenter submitted that:

We agree that there may be circumstances where additional material facts or material changes must be disclosed in connection with a bought deal. The guidance is not intended to limit the ability of the issuer to disclose material facts or material changes of the nature referred to by the commenter.

•

In certain instances, the bought deal itself may trigger a requirement to disclose certain other facts that may in and of themselves be material facts or material changes.

The guidance refers to news releases before the announcement of a bought deal under Part 7 of NI 44-101.

•

For example, a prospectus offering of a resource issuer may result in a change to a capital expenditure budget for the coming year which may be material and would need to also be disclosed in the news release and material change report.

•

Another example is if a significant acquisition is announced together with a financing, both of which may constitute material information and require disclosure and possible material change reporting.

•

It may be more appropriate for this guidance to clarify that the news release and material change report only include the information required to be included to comply with applicable law including disclosure of all material facts and of the material change.

National Instrument 44-101 Short Form Prospectus Distributions

61

Bought deal -- definition -- bought deal agreement