Canadian Securities Course (CSC) Level 1 Practice Exam

What are the rules of early warning disclosure?

1. Mandatory disclosure if purchasing any securities

2. Must disclose future investment strategies

3. Must issue a press release if purchasing over 5%

4. Must issue a press release if purchasing more than 10%

The correct answer is: Must issue a press release if purchasing more than 10%

The correct response is that a press release must be issued if purchasing more than 10%. The early warning disclosure rules are designed to promote transparency in the securities market, particularly when an individual or entity acquires a significant stake in a public company. When an investor purchases more than 10% of a company's voting securities, the rules require that they publicly disclose their holdings. This is important because such ownership levels can influence control of the company and impact management decisions, overall governance, and shareholder dynamics. The obligation to disclose emerges at the 10% threshold because acquisitions at this level can signal a potential change in influence or strategy regarding the company. By requiring disclosure at this point, the rules ensure that the market is informed about significant stakeholders and their intentions, thus enabling investors to make informed decisions. Other thresholds and strategies, such as those mentioned in the other options—mandatory disclosure for all purchases or press releases for acquiring merely 5%—are not aligned with the mandated practice, highlighting the importance of understanding where the early warning trigger actually lies. As such, awareness of these regulations is essential for market participants.