Regulatory
Disclosures:
Prospectuses
Basic Information Needs of Investors
Position: Companies should provide similar basic financial and corporate information in their prospectuses, regardless of:
- Whether they are selling equity, fixed-income, or company-specific derivative securities
- Their business or industry
- Whether the issue’s target investors are retail or wholesale
Rationale: Investors need the same information about issuers regardless of the type of securities they are offering, the industry they are in — supplemented by industry-specific disclosures to aid in interpretation — or the types of securities they are selling. Regarding the information needs of investors, the ability to make larger investments does not imply that the investors are aware of all issues affecting specific securities. Given the larger investment amounts, it is imperative that they receive the same amount and types of information that smaller investors can expect.
Where stated: CMPC - CESR Prospectus (PDF); EAC - PD (PDF)
Historical Financial Information Included in a Prospectus
Position: Investors should have access to at least five years of audited financial statements for the issuer — or securities if the offering is for asset-backed securities — and/or its predecessor companies. Where the company has been in business for fewer than five years it should report audited financial statements for as many years as such audited statements are available and unaudited financial statements for as much of the remainder of the five-year period as is available.
Rationale: Financial statements going back five years typically cover at least one cycle of business, operational, or financial stress for a company and can give investors indications of how management performed in those situations.
Where stated: CMPC - CESR Prospectus (PDF)
Financial Information of a Third Party
Position: Information about a third-party entity is needed for:
- Companies that have had recent and significant mergers, acquisitions, or divestitures
- Holding companies, subsidiaries and group companies
- Special-purpose entities
- Structured finance products
- Joint ventures
Rationale: In many of these situations a third party, such as a special-purpose entity, or a divested or acquired company, can have significant effect on the performance of the issuer or its securities. Consequently investors would benefit from seeing the historical financial information of the relevant third parties in these circumstances.
Where stated: CMPC - CESR Prospectus (PDF)
Restated and Pro-Forma Information on Third Parties
Position: Issuers of securities should include all restated and relevant pro-forma information of third-party entities whose inclusion in prospectuses is required.
Rationale: Without such information investors may not have the most relevant and correct information needed to assess the advisability of a merger or divestiture, or the credit costs of an SPE, or the benefits and costs of a joint venture.
Where stated: CMPC - CESR Prospectus (PDF)
Referenced Disclosures in Prospectuses
Position: Issuing companies should provide a summary of the information contained in referenced documents and the filing date of such reports in preliminary prospectuses or term sheets, and they should make this information available on their websites.
Rationale: Not all investors have the same access to technology and, therefore, do not all have the same ability to access documents electronically. Such disclosures will enable them to find those referenced documents more readily.
Where stated: USAC - Accelerated 10Qs and 10Ks
Prospectus Exemptions
Position: Regulators should exempt issuers from certain prospectus reporting requirements only if the issuers are in good standing with all regulatory agencies and if their securities are already actively trading on secondary markets.
Rationale: If an issuer is not in good standing — it has not provided regularly and continuously updates on the status of the company’s operating performance, financial condition, competitive position, and governance quality — then it should not be permitted to benefit from such exemptions. However, if an issuer has adhered to these transparency requirements, then certain additional disclosures relating to prospectuses for follow-on securities offerings may prove redundant and therefore the issuer should receive an exemption in its prospectus for those specific disclosures.
Where stated: CAC - CSA Concept for Uniform Securities Legislation (PDF)