Canadian securities regulators propose reforms to Canada’s framework for issuer bids

The Canadian Securities Administrators (CSA) recently released for public comment proposed amendments to the regulatory framework governing issuer bids, take-over bids and early warning reporting. In this legal update, the second of a two-part series, we focus on the proposed amendments to the issuer bid regime, providing an overview of the most significant elements and their practical implications for issuers, investors and other market participants.

For an overview of the proposed amendments related to take-over bids and early warning reporting, see our earlier update.

• New selective repurchase exemption for issuers
• Codification of frequently granted exemptive relief
• Convertible securities during issuer bids
• Comment period and next steps

New selective repurchase exemption for issuers

One of the most anticipated proposed amendments is the introduction of a new 5 per cent repurchase exemption to the issuer bid regime (the Selective Repurchase Exemption).

Under the existing regime, there is no "private agreement" exemption available for issuer bids, unlike the analogous exemption that exists for take-over bids. This asymmetry has long been criticized by market participants and commentators as unduly restrictive, as it required issuers to seek an exemption from the CSA to be able to purchase directly from large shareholders who would otherwise be required to dispose of their positions in the open market, which could result in an overhang that would artificially depress the market price of the issuer's securities.

The absence of such an exemption also placed Canadian issuers at a disadvantage relative to their counterparts in other jurisdictions. In the United States, for example, selective share repurchases from individual holders are generally permitted and routinely undertaken.

This gap has undermined the competitiveness of Canadian capital markets, particularly for larger institutional shareholders who could face limited exit options when seeking to sell their positions. The CSA's proposal is a deliberate effort to narrow the gap between the Canadian and US regimes, while imposing meaningful conditions designed to safeguard minority shareholders and prevent market manipulation.

Key conditions of the selective repurchase exemption

The proposed new exemption would be subject to the following restrictions and requirements:

• Volume Cap: Acquisitions under the exemption may not exceed 5 per cent of the securities of the class outstanding at the beginning of the relevant 12-month period.
• Counterparty and Transaction Limits: No more than five persons may sell, and no more than five transactions may occur, in the same 12-month period.
• Discount to Market: The consideration paid (inclusive of any brokerage fees or commissions) must be less than the closing price of the securities on the market on which they are principally traded at the date of the bid.
• Liquid Market: A liquid market in the class of securities must exist at the date of the bid, which requires, among other things, that the aggregate value of trades in the class over the prior 12 months was at least C$15 million and the market value of the class was at least C$75 million. The CSA estimates approximately 75 per cent of TSX-listed issuers, but fewer than 10 per cent of TSXV-listed issuers, would satisfy these criteria.
• Board Determination: The issuer's board of directors must determine that the acquisition will not materially reduce post-transaction liquidity in the securities and will not have a significant negative impact on the market price.
• No Undisclosed Material Information: The issuer must not possess material undisclosed information at the time of the transaction.
• Timing Restriction: The acquisition must take place outside of regular trading hours.
• Prompt Disclosure: The issuer must issue and file a news release after making the bid and before the opening of trading on the next business day, disclosing the details of the transaction and the number of securities acquired under the exemption in the preceding 12 months.

Interaction with NCIBs and aggregate repurchase capacity

Importantly, acquisitions made under the Selective Repurchase Exemption would not reduce an issuer's available capacity under a normal course issuer bid (NCIB). When combined with NCIB entitlements (up to 10 per cent of an issuer's "public float") and the existing exemption for purchases from employees, officers, directors and consultants under National Instrument 62-104, an issuer could, in the aggregate, repurchase up to approximately 20 per cent of a class within a 12-month period.

Offers to non-Canadian shareholders

The proposed amendments would clarify that while offers made to persons who are not in Canada or residents of Canada will technically continue to fall outside the definition of "issuer bid," the CSA retains public interest jurisdiction over such transactions, which would not generally raise public interest concerns if conducted in the circumstances and manner described in the proposed Selective Repurchase Exemption described above.

Codification of frequently granted exemptive relief

In addition to the above, a substantial portion of the proposed amendments is devoted to codifying exemptions that have historically been granted on a discretionary, case-by-case basis, which the CSA hopes will reduce transaction costs, enhance predictability and free up regulatory resources.

• Non-Reporting Issuer Exemption: The issuer bid exemption available to closely held (fewer than 50 securityholders) non-reporting issuers would be amended to expand the class of persons that may be excluded when determining whether an issuer has 50 or fewer securityholders (and is therefore entitled to rely on the exemption). Instead of simply excluding current and former employees for purposes of the calculation, an issuer would also be able to exclude officers, directors, contractors, consultants and their spouses.
• Modified Dutch Auction Issuer Bids: A new provision would permit issuers conducting Dutch auction bids to extend the bid period without first taking up deposited securities, provided the bid is undersubscribed and the market price does not exceed the highest price offered under the bid.
• Proportionate Tenders: A new provision would make proportionate tender options available for all issuer bids, not solely Dutch auction bids. This would provide holders with greater flexibility to participate in a bid while retaining a portion of their position.

Convertible securities during issuer bids

The proposed amendments would expand the existing exemption to permit an issuer conducting an issuer bid to also acquire, redeem or otherwise purchase securities that are convertible into securities of the class subject to the bid. Currently, while the regulations permit an issuer to repurchase securities of the class itself during the pendency of an issuer bid under those exemptions, it does not extend to convertible securities, which is a gap the CSA considers unjustified and has required case-by-case relief in practice.

Comment period and next steps

The proposed amendments are open for comment until August 12, 2026. The CSA has invited stakeholder feedback on 22 questions.

Market participants are encouraged to review the proposed amendments carefully and consider whether submissions to the CSA are warranted. Norton Rose Fulbright's special situations and M&A teams are available to assist clients in assessing the implications of the proposed reforms, preparing comment letters, and adapting compliance frameworks in anticipation of the amendments taking effect.