The Autorité des marchés financiers (the AMF), the securities regulator in the Province of Quebec, has issued an exemption order dated August 14, 2012 (the Québec Order) which provides relief from Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets (MI 51-105). The Québec Order is substantially broader than the exemption orders previously issued by the Alberta and British Columbia Securities Commissions (the Alberta and B.C. Orders), and most recently also by the Nova Scotia Securities Commission, which are discussed in our Osler Update available here. Following the adoption of MI 51-105, securities dealers have been restricting private placement sales in Quebec and certain other provinces as a result of concerns that those sales could result in the issuer becoming a reporting issuer involuntarily as a result of MI 51-105. This exemption order should effectively resolve those concerns for private placements in Quebec which are limited to “permitted clients.”
For our Osler Update discussing MI 51-105, click here.
The Québec Order provides that an issuer, whether Canadian or non-Canadian, will not be deemed to be a reporting issuer pursuant to Section 3 of MI 51-105 if it satisfies one of five alternative conditions each time that the provisions of Section 3 would otherwise have been triggered.
Most importantly, an issuer will not become a reporting issuer under MI 51-105 so long as the promotional activities relating to the sales of its securities are limited to “permitted clients” in Québec, as defined under National Instrument 31-103, and are conducted through a registered securities dealer (including exempt market dealers and restricted dealers), or through a dealer relying on the international dealer exemption. Further, an issuer cannot become a reporting issuer in the future as a result of a private placement in Quebec of securities which subsequently become traded in the U.S. over-the-counter market, so long as the only purchasers in Quebec were “permitted clients.”
The five alternative conditions are:
- Designated Exchanges. The issuer has issued a class of securities that are listed or quoted on one or more designated stock exchanges. The list of designated exchanges, as follows, mirrors the Alberta and B.C. Orders:
- NASDAQ OMX
- Borsa Italiana, MTA Tier
- London Stock Exchange, except AIM
- Hong Kong Stock Exchange
- Deutsche Börse, except the First Quotation Board and the Entry Standard tier
- Xetra, Prime Standard and General Standard tiers
- SIX Swiss Exchange
- Bourse de Luxembourg, except Euro MTF
- Tokyo Stock Exchange, 1st Section and 2nd Section
- Shanghai Stock Exchange
- The Stock Exchange of Thailand, except The Market for Alternative Investment (mai)
- National Stock Exchange of India
- Bombay Stock Exchange
- Osaka Stock Exchange
- Korea Exchange
- Singapore Exchange
Unlike the Alberta and B.C. Orders, under the Québec Order this listing does not have to be the issuer’s “primary listing” (as defined in the Alberta and B.C. Orders).
- Distribution of Non-Convertible Debt. Similar to the Alberta and B.C. Orders, the Québec Order provides an exemption for an issuer that has no class of securities other than non-convertible debt securities listed or quoted on an exchange or quotation and trade reporting system, and distributes such securities to a Quebec resident.
- Investment Funds. The Québec Order applies if the issuer is an “investment fund” within the meaning of the Act, which includes both mutual funds and non-redeemable investment funds.
- Promotional Activities to “Permitted Clients.” The Québec Order applies where “promotional activities”, as defined in MI 51-105, directed to a Quebec resident: (i) only concern a “permitted client”, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103); and (ii) are carried on by a Quebec registered investment dealer, exempt market dealer or restricted dealer, or by an entity that relies on the international dealer exemption in NI 31-103.
- Sales Limited to “Permitted Clients.” The Québec Order provides that an issuer will not be a reporting issuer as a result of a class of securities becoming quoted on a U.S. over-the-counter market so long as sales of those securities in Quebec were limited to “permitted clients”.
We are expecting the Canadian Securities Administrators to provide additional interpretive guidance regarding MI 51-105, the Québec Order and the Alberta and B.C. Orders, and possibly issue additional relief. We will provide updated information as it becomes available.
On the basis of the Québec Order, we expect that U.S. and other non-Canadian securities dealers will resume making private placement sales of securities to “permitted clients” in the Province of Quebec without any concerns regarding the potential application of MI 51-105 to the issuer as a result of those sales.