On April 16, 2015, the securities regulatory authorities in British Columbia, New Brunswick and Saskatchewan (the Participating Jurisdictions) published Multilateral CSA Notice 45-315 Proposed Prospectus Exemption for Certain Distributions through an Investment Dealer in respect of a proposed prospectus exemption (the Proposed Exemption).
If adopted, the Proposed Exemption would allow issuers listed on a Canadian exchange to raise funds by distributing securities to investors who have obtained advice about the suitability of the investment from a registered investment dealer, without having to file a prospectus or other offering document with securities regulators.
The securities regulators in the Participating Jurisdictions noted that since issuers rarely use the prospectus exemptions intended for sales to retail investors, retail investors have limited opportunity to invest directly in issuers. As such, retail investors do not have an opportunity to participate in the more favourable terms generally offered through private placements.
To rely on the Proposed Exemption, issuers must meet all of the following conditions:
- the issuer must be a reporting issuer in at least one jurisdiction of Canada and have a class of equity securities listed on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange or Aequitas Neo Exchange Inc.;
- the issuer's continuous disclosure record must be up-to-date and in compliance with applicable securities legislation;
- the offering must consist of (i) a listed security, (ii) a unit consisting of a listed security and a warrant to acquire a listed security, or (iii) a security convertible into a listed security at the holder's option;
- the news release announcing the offering must describe the proposed distribution and use of proceeds and contain a statement that there is no undisclosed material fact or material change in respect of the issuer;
- the investor must obtain advice regarding the suitability of the investment from a registered investment dealer (which does not include a restricted dealer, an exempt market dealer or a dealer that is exempt from providing suitability advice);
- the investor must be provided with a contractual right of action for rescission or damages in the event of a misrepresentation in the issuer's continuous disclosure record; and
- if an issuer voluntarily provides an offering document, the investor will have certain rights of action in the event of a misrepresentation in it.
Securities issued under the Proposed Exemption would be subject to resale restrictions for four months after issuance and issuers must file a report of exempt distribution within 10 days after each offering.
Background to Prospectus Exemptions
One of the main requirements of securities legislation is that an issuer distributing a security must file, and obtain a receipt for, a prospectus, which must contain full, true and plain disclosure of all material facts relating to the securities being offered. Securities legislation provides exemptions from the prospectus requirement under certain circumstances (e.g., because of the investor's knowledge, sophistication or relationship with principals of the issuer, or where alternate protections exist). The rationale behind the Proposed Exemption is that the conditions relating to the Proposed Exemption would provide alternate protections for investors.
Comments Sought on Proposed Exemption
The securities regulators in the Participating Jurisdictions are inviting comments on all aspects of the Proposed Exemption and, in particular, feedback on the following:
- whether issuers will use the Proposed Exemption;
- whether the Proposed Exemption should be expanded so that investors could also receive suitability advice from a registered exempt market dealer;
- the appropriateness of a four-month hold period applicable to securities issued under the Proposed Exemption; and
- whether the Proposed Exemption maintains sufficient investor protection.
Time for Comments
Comments will be accepted until June 15, 2015.