Modernizing capital markets, if possible before noon!

Here in Ontario, Canada, we have something new to read, the recently-issued consultation report of the Capital Markets Modernization Taskforce.

The taskforce was established in February 2020 to review and make recommendations to modernize Ontario’s capital markets regulation. The report notes that the last such review concluded in 2003, after three years of work, and that since then “the global financial system has undergone systemic changes, particularly in response to the 2008 global financial crisis. More recently, the ongoing COVID-19 pandemic has highlighted the need for modernized capital markets to assist businesses raise capital, incubate innovative companies, and protect investors.”

It’s evident that to be issue a 47-recommendation report in July 2020, some five months after getting under way, is unusually speedy for this kind of exercise, and it’s clear that the group is pretty pleased with itself on this score, noting that “as opposed to previous panel reviews which were spaced over multiple years, we are aiming to deliver our final report to the Minister of Finance by the end of 2020.” A recent Investment Executive article summed up the most headline-grabbing items:

  • …the task force proposed that the mandate of the Ontario Securities Commission (OSC) be expanded to include fostering capital formation and competition in the markets.
  • Calling it a fundamental cultural shift, (the task force chair, Walied Soliman) said the task force’s proposals ask, for example, “how we can assure that we have successful biopharma companies in this country that don’t just leave here when it’s time to do their initial public offering, taking their head office jobs after their incubation in this country to the U.S. and elsewhere.”
  • The task force also proposed dividing the OSC’s regulatory and adjudicative functions, either by “creating a separate tribunal, comprised of adjudicators and its own staff within the current OSC, or by creating a new capital markets adjudicative tribunal as a separate entity from the OSC.”
  • Under either scenario, the OSC’s board “would focus on the strategic oversight and corporate governance of the regulator.” Meanwhile, the CEO, “a separate position from the chair,” would manage the OSC’s day-to-day functions. A Chief Adjudicator would oversee the tribunal’s adjudicative responsibilities.

Only a few items relate to financial reporting, the main subject area of this blog. We’ve covered one of them a few times in the past:

  • Publicly listed companies in Ontario are currently required to provide quarterly financial reporting of interim financial results and provide accompanying Management Discussion and Analysis (MD&A). However, many stakeholders, especially smaller issuers, have noted the significant costs and resources allocated to producing quarterly financial statements and MD&A. While quarterly financial statements provide timely information to investors and intermediaries, there can be instances in which the regulatory and internal cost of preparing such frequent reporting exceeds the benefit. This is particularly true for smaller issuers that may not experience significant changes to their operations that would be reflected in the financial statements.

The task force thus says that it’s considering changing the requirement for quarterly financial statements to allow for an option for issuers to file semi-annual reporting, and asks a few questions about possible concerns:

  • Should the option of semi-annual reporting be made available to only smaller issuers with less significant quarterly operational changes and what should the eligibility criteria for those publishing semi-annual reporting be? If semi-annual reporting is adopted, should issuers using a short form prospectus be required to supplement their financial disclosure if more than a quarter has passed since their most recent financial statements?

And that’s it. It’s an awfully thin discussion on which to solicit comment that’s anything other than subjective and contradictory (in fact it’s little more sophisticated than was Trump’s mercifully short-lived focus on the issue). For this kind of issue, which has been extensively debated numerous times in the past, it would surely be more productive to devise and advocate for a specific proposal, as a basis for framing the subsequent input. But that, I suppose, would have taken more time. Another example relates to improving corporate board diversity:

  • The Taskforce proposes amending securities legislation to require TSX-listed companies to set targets, and annually provide data in relation to the representation of women, black people, indigenous people, and people of colour (BIPOC), on boards and in executive officer positions. What should be the appropriate target for women and BIPOC’s on TSX-listed company boards? One suggestion we have heard is 40 per cent women and 20 per cent BIPOC.

Leaving aside the rather shaky merit of the “BIPOC” acronym, I couldn’t get past that last sentence: what kind of task force is it that seeks to define such complex territory based on “one suggestion we have heard”? But on the other hand, I suppose, at least they’re pushing the conversation (which I personally take to be a worthy one) forward.

Anyway, comments are due on those and the other proposals by September 7, 2020. Which I imagine, especially given summer distractions, will seem like too little time to many potential commentators. Maybe it’ll help that covid-19 has snatched a large chunk of the summer distractions away…

The opinions expressed are solely those of the author

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