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The BC Securities Commission (BCSC) recently published proposed Local Instrument 51-519 to put more stringent disclosure rules in place for TSX Venture issuers with respect to promotional activities carried out on their behalf. Since it is a local instrument rather than one to be adopted nationally, it will only apply to promotional activity in British Columbia. However, according to the latest TMX Group data, nearly 60% of the companies listed on the TSXV exchange operate within the mineral industry and many are headquartered in British Columbia.
If adopted as initially published, the instrument would require a venture issuer that retains or compensates a person to engage in promotional activities to issue and file a news release that includes information such as the contact information of the person engaged, the platforms on which the activity will occur, and the compensation to be paid for the promotional activity. In general, the proposed Instrument doesn’t apply to directors, officers and employees of a company, or to registered dealers.
The Notice issued by the BCSC identifies certain types of problematic promotional activity that were more fully described in a Notice published by the Canadian Securities Administrators in November, 2018. The list itself doesn’t reveal anything particularly new or surprising including such things as “opinion-based content, hyperbole, or unbalanced or unsubstantiated claims” and “activity undertaken in order to artificially promote interest in the issuer’s securities”. The real focus is on the manner in which promotional information is disclosed. Specifically, there is concern around the failure of issuers to ensure disclosure of compensation (including securities of the issuer) paid to persons retained to conduct promotional activity as well as other conflicts of interest.
Greater transparency strengthens the integrity of our capital markets and ultimately aids in capital formation, but it is critical that the regulatory framework creates a level playing field for all.
The period for the submission of comments to the BCSC on the proposal has just closed. The Prospectors and Developers Association of Canada (PDAC) which represents Canada’s mineral exploration and development community, submitted a comment letter that raised a couple of very important points for mineral sector issuers.
First, PDAC expressed concern regarding the interaction of the proposed BCSC Instrument and National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101). As any issuer operating in the sector knows, NI 43-101 requires all technical disclosure by an issuer to be approved by a “qualified person” or QP. If a QP is considered to be a third party compensated for promotional disclosure under BC Instrument 51-519, mineral industry issuers would have an additional layer of regulation not applicable to issuers in other sectors.
Secondly, negative promotional campaigns by activist short sellers and others continue to be largely unregulated. Although short seller may not be compensated for promotional activity, they have their own agenda of which general investors may not be aware. In addition, NGOs can make unsubstantiated negative statements about participants in the mineral sector with very little disclosure about the source or those funding their activities.
We are hopeful that the BCSC will take these comments into account in the development of the final rules around promotional activities in BC. Greater transparency strengthens the integrity of our capital markets and ultimately aids in capital formation, but it is critical that the regulatory framework creates a level playing field for all.
The BCSC Notice and proposed Instrument 51-519 can be found at https://www.bcsc.bc.ca/-/media/PWS/New-Resources/Securities-Law/Instruments-and-Policies/BCN/BCN-202103-May-26-2021.pdf and https://www.bcsc.bc.ca/-/media/PWS/New-Resources/Securities-Law/Instruments-and-Policies/Policy-5/51519-BCI-Proposed-May-26-2021.pdf.