OSC Proposes Rule for Distributions Outside of Canada

The Ontario Securities Commission (the “OSC”) has published for comment Proposed OSC Rule 72‑503 – Distributions Outside of Canada and its related companion policy (the “Proposed Rule”).  The OSC has requested comment on the Proposed Rule by September 28, 2016.

Proposed Prospectus Exemptions

The Proposed Rule creates four new prospectus exemptions.  Compliance with the securities laws of the relevant foreign jurisdiction is a condition to the availability of each exemption.  The proposed exemptions are as follows:

  1. Distributions under Public Offering Document in Foreign Jurisdictions:  The Ontario prospectus requirement would not apply where (i) the issuer has filed a registration statement in accordance with the United States Securities Act of 1933 registering the securities in connection with the distribution, and the registration has become effective, or (ii) the issuer has filed a document similar to a final prospectus for which a receipt or similar acknowledgement of approval has been obtained in accordance with the securities laws of a “designated foreign jurisdiction” registering the securities in connection with the distribution or qualifying the securities for distribution.  The designated foreign jurisdictions are Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom.
  2. Concurrent Distribution under Final Prospectus in Ontario:  The Ontario prospectus requirement would not apply where the issuer of the securities has filed with the OSC, and a receipt has been issued for, a final prospectus qualifying the concurrent distribution of such securities in Ontario.  Since even foreign purchasers of Ontario prospectus‑qualified securities may be entitled to certain rights and investor protections under the Act, any prospectus filed in such circumstances should clearly state whether or not it also qualifies the distribution of securities to investors outside of Canada.
  3. Distributions by Reporting Issuers:  The Ontario prospectus requirement would not apply where the issuer of the securities is and has been a reporting issuer in a jurisdiction of Canada for the four months immediately preceding such distribution.
  4. Other Distributions:  The Proposed Rule provides that the Ontario prospectus requirement would not apply even when an outbound distribution does not fall under one of the above categories, but that in such circumstances, unlike for the exemptions set out above, the first trade of such securities would be subject to resale restrictions except where the first trade is to a person or company outside of Canada, or where (i) the issuer has been a reporting issuer in a jurisdiction of Canada for the four months immediately preceding the trade, and (ii) at least four months have elapsed from the distribution date.

Exemptions from the Registration Requirement

The proposed rule also sets out an exemption from the Ontario dealer and underwriter registration requirements for outbound distributions, subject to certain conditions, but generally provides that if the person is registered as a broker or dealer in the United States or a designated foreign jurisdiction and is not registered as a dealer in Canada, does not carry on business in Ontario and does not trade securities to anyone in Ontario, then they are exempt from the registration requirements in Ontario.

Form of Report of Distributions Outside of Canada

An issuer that relies on one of the proposed prospectus exemptions (other than the Distributions under Public Offering Document in Foreign Jurisdictions exemption discussed above) would be required to file a new prescribed “Report of Distribution Outside of Canada” on or before the tenth day after the distribution date.  The new report requires certain limited information concerning the distribution, including information relating to the identity of the issuer, the type and number of securities distributed and the purchase price, the date of distribution and the name and address of any person acting as dealer or underwriter in connection with the distribution.

Comparison to BC Instrument 72‑503

The Proposed Rule arguably goes further than the BC Instrument bearing the same number (the BC Instrument was originally adopted in 2001 and has gone through several reiterations).  The BC Instrument provides an exemption from the prospectus and registration requirements in British Columbia if the distribution is not made to a purchaser resident in British Columbia and the issuer has equity securities listed on a qualified market (the Toronto Stock Exchange, the TSX Venture Exchange, Bourse de Montreal, NYSE Amex, Nasdaq National Market, Nasdaq Capital Market, the New York Stock Exchange, London Stock Exchange and Aequitas NEO Exchange).  The purchaser is required to make certain certifications and acknowledgements in a subscription agreement under the BC Instrument and the issuer needs to file a Report of Exempt Distribution.  Securities sold under the BC Instrument are subject to a four-month hold period.

The foregoing is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, please contact the author who would be pleased to discuss the issues above with you, in the context of your particular circumstances.

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