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The CSA's pilot project to allow eligible venture issuers to voluntarily adopt semi-annual financial reporting (SAR) is set to begin in March 2026 (the SAR Pilot). Specifically, it will allow certain issuers listed on the TSXV or CSE with annual revenue of no more than C$10 million to opt out of three- and nine-month financial reports under NI 51-102. 1]
Whether the SAR Pilot becomes permanent or is expanded to also allow non-venture issuers (e.g., those listed on the TSX) to adopt semi-annual reporting, remains to be seen. The outcome may also be driven by developments in the U.S., which has indicated it is working towards fast-tracking SAR on a market-wide basis, regardless of issuer size.
Amid this dynamic and evolving backdrop, we explore the advantages, disadvantages and complexities presented by SAR. For more Fasken thought leadership, visit our Capital Markets and M&A hub and subscribe.
The Wider Context (everyone else is doing it?)
The possibility of SAR in Canada is far from new. Quarterly reporting was not the original state of play. The U.S. Securities and Exchange Commission (SEC) began mandating quarterly reporting only in 1970. Canada's securities regulators followed suit over the rest of the decade, with quarterly reporting being universally adopted across the country by 1980.
Today, Canada and the U.S. are outliers in respect of quarterly reporting. The European Union (EU) imposed quarterly reporting on public companies only in 2004 but then reversed course in 2013. The British experiment with quarterly reporting was even shorter, beginning in 2007 and ending in 2014. Japan's experiment was longer at 21 years, from 2003 to 2024. Singapore falls in the middle, having adopted quarterly reporting between 2003 and 2020. Australia has had semi-annual reporting since 2001 and Switzerland since 1997.
The SEC began revisiting the wisdom of mandatory quarterly reporting in 2018, during President Trump's first term. It has rededicated itself to this project during his second term and has stated it intends to fast-track its implementation. Similarly, the SAR Pilot is the result of CSA work and consultations that stretch back over a decade.
The Advantages of SAR (as argued by its advocates)
The principal argument against mandatory quarterly reporting, sometimes criticized as "quarterly capitalism", is that it encourages undue "short-termism", i.e., a tendency for public companies to prioritize boosting near-term stock price over long-term growth. This concern was the basis of the EU's reversal on mandatory quarterly reporting in 2013. It explained:
"[Mandatory quarterly reporting] encourage[s] short-term performance and discourage[s] long-term investment. In order to encourage sustainable value creation and long-term oriented investment strategy, it is essential to reduce short-term pressure on issuers and give investors an incentive to adopt a longer-term vision."[2]
Put more practically, the concern is that quarterly reporting can make public company executives feel pressured to postpone or cut hiring, investment or research and development to try to "make the quarter". Secondary arguments against mandatory quarterly reporting focus on the burdens imposed by managing short-term financial reporting, including both in terms of financial costs and the associated drain on human resources. In particular, senior executives' time would be better spent on advancing business strategy rather than on the onerous preparatory work required in connection with quarterly reports and earnings calls.
The Disadvantages of SAR (as argued by its critics)
Advocates of mandatory quarterly reporting make a variety of arguments. They point to the enduring strength of U.S. stock markets relative to their international competitors as justification to maintain the status quo. They add that classic finance theory offers that more information is generally preferable to less information. They worry that mandatory quarterly reporting is a key guardrail, the removal of which would weaken the market's discipline of corporate decision-making.
Other practical concerns raised by critics of SAR include that retail investors would be disadvantaged relative to institutional investors whose deep resources better enable them to fill in information gaps that result from less frequent reporting. They argue that less frequent reporting would lead to greater market price volatility. They also argue that these concerns would result in a higher cost of capital as investors seek a higher risk premium.
We previously provided an in-depth review of the legal complications to which SAR can give rise. Examples we highlighted included the conflict between the SAR Pilot rules and other securities regulations which still require quarterly financial statements (for example, in connection with prospectus offerings and circular requirements) and the problems which may arise if an issuer using SAR is no longer eligible to do so (e.g., if it graduates to the TSX) and must file first and third quarter financial statements with comparables to the previous year. Another example we highlighted is the greater possibility that insiders or potential investors could be positioned to trade on material non-public information regarding the issuer.
Either Way, SAR May Be Inevitable (and come relatively soon)
As mentioned, the SEC has stated it intends to fast-track SAR on a market-wide basis. Should that occur, Canadian securities regulators would come under immediate pressure to expand SAR to all reporting issuers to avoid Canada's capital markets being put at a significant disadvantage relative to their U.S. competitors. That said, the situation in the U.S. is unlikely to change overnight. We would expect the SEC to observe its normal rulemaking process in implementing SAR. This requires first proposing the new rules and then subjecting them to a public comment period before finalization and adoption. A transition period may also be applied, the length of which could vary depending on different factors, such as the market capitalization of the issuer. We understand the CSA is alive to the real, near-term possibility of such a sea change. In announcing the SAR Pilot, the CSA stated it will engage in a broader SAR rule-making project and that its "learnings" from the SAR Pilot will inform this work. The CSA also stated it will continue monitoring international developments relating to SAR, a clear allusion to the recent and forceful pivot back towards pursuing SAR in the U.S. The question becomes whether the CSA will advance its work at a sufficient speed to keep pace with the SEC.
But SAR May Also Be Voluntary (to SAR or not to SAR?)
If the U.S. appears intent on embracing SAR on a market-wide basis, and if Canadian securities regulators were to feel compelled to follow suit, where does that leave TSX-listed issuers? A key point here is that embracing SAR likely does not mean prohibiting the continuation of quarterly reporting, including on a voluntary basis. This is the situation in the EU and, according to Forbes, EU public companies are currently "more or less" split between quarterly and semi-annual reporters.
Assuming Canadian securities regulators follow in the EU's footsteps, the question for TSX issuers would become whether SAR is right for them. This analysis would involve a wide array of considerations and would be inherently issuer-specific. Factors to weigh would likely include the interaction of SAR with the issuer's financial, accounting and audit processes. The preferences of the issuer's large and institutional investors would also be critical. Other factors to consider include whether moving to SAR could result in reduced analyst coverage or create competitive advantages for the issuer's closest competitors. The possibility that SAR could result in greater vulnerability to shareholder activism may also be a concern. Activists generally prefer more information and transparency, not less. An issuer's move to SAR could therefore present a potential activist with an otherwise avoidable wedge issue.
Concluding Comments (getting SARted?)
If we take the U.S. administration and the SEC at their word, SAR is more likely than not coming to North America. Canadian securities regulators should operate under this assumption and act with urgency. Assuming quarterly reporting will be permitted to continue on a voluntary basis under SAR, TSX-listed issuers should begin considering which approach might best suit their needs and the reasons why. They can also begin soliciting the views of their significant shareholders. Meaningful insights also stand to be gained from the numerous international jurisdictions with significant SAR experience.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
