The CSA is introducing amendments to securities laws that will reduce the disclosure required to extend a foreign offering into Canada on a private placement basis. The changes will be effective September 8, 2015, and will exempt certain foreign issuers and dealers from making disclosure regarding underwriters’ conflicts and statutory rights of action and will also allow issuers to make listing representations that are currently prohibited without regulatory approval (the Amendments).
The purpose of the Amendments is to reduce the regulatory burden involved in offering eligible foreign securities to sophisticated Canadian investors. The Amendments will eliminate the need for a Canadian wrapper where there is a concurrent US-registered or non-registered offering that is extended into Canada. In other circumstances the required disclosure will be reduced.
Traditionally where offerings are extended into Canada by foreign issuers, supplementary Canadian disclosure is usually contained in a “wrapper,” a short document that wraps around the foreign disclosure document. Such disclosure may be mandated (i.e., statutory rights of action and underwriters’ conflict of interest disclosure) or may be included to assist investors (e.g., resale restrictions, recommendation to seek tax advice). The foreign disclosure document and the wrapper constitute an offering memorandum in Canada.
To rely on the Amendments, the Canadian private placement:
- must only be made to “permitted clients” (a subset of accredited investors consisting of institutional and other sophisticated investors); and
- must be an offering of “eligible foreign securities.” Eligible foreign securities are securities of a foreign issuer that are offered primarily in a foreign jurisdiction as part of a distribution of securities and are:
- securities of a foreign issuer that is not a reporting issuer in Canada, that has its head office outside of Canada, and that has a majority of each of its executive officers and directors ordinarily resident outside of Canada; or
- issued or guaranteed by a foreign government.
The Amendments provide the following relief:
- Connected and related issuer disclosure: The Amendments provide a limited exemption from the requirement to make face-page disclosure of conflicts of interest between issuers and dealers set out in National Instrument 33-105 Underwriting Conflicts. To rely on the exemption the following conditions apply:
- the offering must be made through a registered dealer or international dealer who must deliver a written notice to the permitted client before or during the distribution indicating that the exemption is being relied upon. The notice may be included in the exempt offering document (i.e., offering memorandum) or may be given once by the dealer if the notice indicates it is applicable to any future distribution of eligible foreign securities to the permitted client;
- a concurrent distribution of the securities is being made to US investors in compliance with federal US securities laws and the disclosure requirements of FINRA rule 5121, if applicable. Therefore, foreign offerings without a US-registered or unregistered distribution will not be able to rely on the exemption; and
- an exempt offering document must be delivered to the permitted client and must contain the same information as that supplied to US investors.
When offering foreign government securities to permitted clients in Canada only the first two conditions described above will apply.
- Statutory rights of action: It will no longer be necessary to fully describe in the wrapper the statutory rights of action available to investors in the event the offering memorandum contains a misrepresentation. This disclosure is currently required in certain Canadian jurisdictions including Ontario. Instead a “specified disclosure statement” must be provided to permitted clients. This simple statement can be included in the offering memorandum, in a document delivered separately from the offering memorandum or in a “one-time” written notice. The prescribed language for the disclosure statement refers to the availability of the statutory rights but does not describe the rights in detail. If provided in the written notice, it must be delivered to the permitted client by a registered dealer or international dealer and should indicate it applies to all future distributions of eligible foreign securities to that permitted client. No acknowledgement of the receipt of the written notice is required.
- Listing representations. A statement in the offering memorandum regarding the intention to list the eligible foreign securities on a stock exchange or market will be permitted without regulatory approval provided such statement is not a misrepresentation and is in compliance with the rules of the market or exchange. Currently such statements are prohibited by Canadian securities legislation in certain jurisdictions.
The Amendments reflect exemptive relief previously granted by the Ontario Securities Commission to certain market participants in recent years. While the Amendments provide important relief from Canadian disclosure requirements, other provisions of Canadian law may affect extending a foreign offering into Canada. These requirements include the filing of reports with Canadian securities regulators of the exempt trades, dealer and investment manager registration issues and other requirements that are specific to the nature of the transaction or the type of foreign issuer.
The relief from the current requirements will require the amendment of National Instrument 33-105Underwriting Conflicts and OSC Rule 45-501 Ontario Prospectus and Registration Exemptions and the introduction of new Multilateral Instrument 45-107 Listing Representations.