On August 13, 2015, the Canadian Securities Administrators (CSA) published proposed amendments (the Proposed Amendments) to the form for reporting prospectus exempt distributions of securities in Canada.  The proposal follows initial proposals on the same subject published in February 2014 and March 2014.

Notably, while the Proposed Amendments would again harmonize reporting across all jurisdictions in Canada, harmonization is achieved at the expense of broader disclosure.  Among others, the proposed disclosure requirements include detailed information on directors, executive officers, control persons and promoters (for certain types of issuers) and the identities of persons being compensated as a result of the distribution, as well as other significant changes for investment funds.

The Proposed Exempt Trade Report

Our readers will recall that the British Columbia Securities Commission implemented its own, more detailed, form of report, which is now proposed to be repealed in favour of the current proposal.  Some of the most significant changes to the current report are adopted from the enhanced disclosure requirements of the British Columbia exempt trade report.  The Proposed Amendments would require that issuers provide the following enhanced disclosure in the exempt trade report:

  1. Name, title and province/state/country of residence of directors, officers, control persons and promoters (and of the directors and officers of non-individual control persons and promoters).  
  2. Number and total amount paid for voting securities of the issuer owned or controlled by the persons noted above, as well as the total price paid for such securities.  
  3. The identity of insiders, registrants or other individuals or entities being compensated as a result of the distribution, their relationship to the issuer and the details of the compensation.  
  4. Disclosure of whether the purchaser is an insider of the issuer or a registrant.

In addition to the requirements specified in paragraph 1, above, the residential addresses of each director, officer, control person and promoter (and of directors and officers of non-individual control persons and promoters) must be confidentially disclosed. 

Certain issuers would be exempt from providing residential addresses of directors, officers, control persons and promoters as well as the information specified in paragraphs 1 and 2, above, being:

  • investment fund issuers;
  • reporting issuers and their wholly owned subsidiaries;
  • issuers distributing eligible foreign securities only to permitted clients; and
  • foreign public issuers and their wholly owned subsidiaries.

A foreign public issuer is an issuer that: (a) has a class of securities registered under section 12 of the U.S. Securities Exchange Act of 1934; (b) is required to file reports under section 15(d) of the U.S. Securities Exchange Act of 1934; or (c) is required to provide disclosure relating to the issuer and its securities in Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland or the United Kingdom.

Additional Disclosures

Several other additional disclosures are proposed that are new to both British Columbia and the other Canadian jurisdictions.  These include:

  1. Unique identifiers, if available, including National Registration Database (NRD) numbers, SEDAR profile numbers, Legal Entity Identifier (LEI) and CUSIP numbers.  
  2. For firms without a SEDAR profile, additional disclosures are required: the date of formation, the financial year-end, jurisdictions where reporting, stock exchange listings and size of assets of the issuer.  
  3. The number of employees of the issuer.  
  4. On a confidential basis, the name of the person compensated for the distribution made to each purchaser.

Notably, the Proposed Amendments would require filers to list all offering materials required to be filed or delivered in connection with the distribution under the securities legislation of Saskatchewan, Ontario, Quebec, New Brunswick and Nova Scotia.  This would be a reporting requirement only – no additional documents would have to be filed.

Investment Funds

A key proposed change for investment funds is a change in the deadline for investment funds that opt to file exempt trade reports annually.  Under the Proposed Amendments, the deadline for filing annually would be anchored to the calendar year rather than an investment fund’s financial year – reports would be due by January 30 of each year. 

In addition, the net asset value range of the investment fund, the date of formation, financial year-end, jurisdictions where reporting, stock exchange listings and investment fund type would be required under the Proposed Amendments. 

The current exempt trade report only requires disclosure of sales of investment fund securities.  The Proposed Amendments would require disclosure of the net proceeds of the offering by jurisdiction, being the gross proceeds from the distribution for which the report is being filed, less the gross redemptions relating to such distribution.  The CSA state that providing only the purchase amount would overstate the size of the market given that most investment funds offer some redemption rights.

The CSA is accepting comments on the proposal until October 13, 2015.  For further information, please consult the CSA Notice and Request for Comment.