The Canadian Securities Administrators has unveiled a new policy to deal with the unique aspects of income trusts. Proposed National Policy 41-201 is designed to provide guidance to market participants about income trusts and other indirect offering structures.

“We want to ensure that everyone investing in income trust offerings has access to sufficient information to make an informed investment decision,” says the CSA.

“We also believe that it would be beneficial to express our view about how the existing regulatory framework applies to non-corporate issuers (such as income trusts) and to indirect offerings, in order to minimize inconsistent interpretations and better ensure that the intent of the regulatory requirements is preserved.”

The proposed policy provides guidance on prospectus disclosure to ensure that the unique attributes of income trusts are described in a simple and clear manner.

The CSA is considering whether to give direction regarding the risk factors that issuers describe in relation to the operating entity. It is notably concerned about the treatment of distributable cash, and the use of short-term debt. The rule recommends that issuers disclose the principal terms of the operating entity’s short-term debt in the prospectus.

The rule describes stability ratings and discusses why the CSA believes that they offer useful information to investors. “We are concerned about use of measures in the prospectus that are not based on GAAP because use of those measures can make it difficult or impossible for investors to compare income trusts.”

The policy also describes the disclosure that the CSA expects in the prospectus about how the price of an income trust’s units is determined. It will also require disclosure of the executive compensation of the operating entity’s executives.

The policy lays out the CSA’s expectations regarding continuous disclosure, and guidance about the comparative financial information and the appropriate recognition of all intangible assets on an acquisition accounted for under the purchase method. It also deals with insider reporting responsibilities and the regulatory framework relating to prospectus liability.

The proposed rule also outlines concerns about sales and marketing materials, particularly relating to use of the term “yield”.

The CSA has published 41-201 for a 60-day comment period. Comments are due by December 23.