CCFC 513 Lecture Notes - Lecture 7: Issued Shares, Pharmaceutical Drug, Nortel
25 Jun 2018
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Department
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Professor
March 14th, 2018
TOPIC Securities Law and Corporate Governance
When do you become a reporting issuer?
As soon as you publish the initial prospectus, per Kerr.
- Once you file it, you then have an obligation, beginning from this point, to update in the event of
any material changes, i.e. you are subject to continuous disclosure requirements.
There have been major changes since 2002 in securities legislation, largely having emanated from the US,
but which have been adopted in Canada.
Since 2002, there has been a significant encroachment of securities law into what was seen as
traditionally corporate law questions, i.e. there is now more overlap.
- Why?
oBecause after 1989 (post Communism), it was argued that it was necessary to have a
market and to organize capital markets in the same way the US had done.
oBut by 2000/2001, the American confidence in the capital market dropped. This was
because there was a manipulation of the information that was being made available on the
market.
Markets are supposed to efficiently allocate where people invest their savings.
The purpose of having a market is to send signal, through price, to tell people
what they should be doing with their money.
But, a certain amount of US firms were trying to juice the system to get the world
to think that they were one thing, whereas they were actually something else.
Basically, they were trying to boost their share prices.
How can you do that?
oBoost your earnings, i.e. the money coming in.
oManipulate information.
Banks and financial institutions live and die on trust.
oSo while the US was supposed to be the leader, it then became clear that there were
significant flaws in the model.
The flaw was how to control the flow of information.
So how can you approach this problem and propose a solution? N.B. There was conflict across
jurisdictions on how to do this.
- Two ways to do it.
oPrinciples-based approach.
Broad principles lays out what the regulator wants to do, and the jurisprudence
starts to frame out how it is applied and interpreted. There are no fixed limits
through rules, in order not to encourage actors to play near and push those limits.
The vagueness does not encourage people to push the envelope. E.g. Fiduciary
duties of directors, good faith.
oRules-based approach.
Development of specific rules about what can and cannot be done. Here, the rules
are intended to give certainty and circumscribe action. However, unlike
principles, once you have rules, you have created incentive for people to find
ways around the rules. E.g. Taxation.
- So, the question was, in response to this crisis, which approach do you take?
oThe US adopted the Sarbanes-Oxley Act (SOX) which is a strong rules-based approach.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
As soon as you publish the initial prospectus, per kerr. Once you file it, you then have an obligation, beginning from this point, to update in the event of any material changes, i. e. you are subject to continuous disclosure requirements. There have been major changes since 2002 in securities legislation, largely having emanated from the us, but which have been adopted in canada. Since 2002, there has been a significant encroachment of securities law into what was seen as traditionally corporate law questions, i. e. there is now more overlap. This was because there was a manipulation of the information that was being made available on the market. Markets are supposed to efficiently allocate where people invest their savings. The purpose of having a market is to send signal, through price, to tell people what they should be doing with their money.
