On June 30, 2016, the OSC published for comment Proposed Rule 72-503 and Proposed Companion Policy 72-503CP (collectively, the Proposed Rule). The Proposed Rule aims to provide Ontario-based issuers and dealers with greater certainty about the applicability of Ontario’s prospectus and dealer registration rules when securities are distributed to investors outside Ontario. The Proposed Rule would replace OSC Interpretation Note 1 Distributions of Securities Outside Ontario (Interpretation Note), which was adopted in 1983. The Interpretation Note formalized the OSC’s view that neither a prospectus nor a prospectus exemption is required to issue securities to investors outside Ontario if the issuer and its intermediaries take reasonable steps to ensure that such securities come to rest outside of Ontario.
However, with the increasing globalization of capital formation over the past 33 years, the Interpretation Note’s guidance as to what reasonable steps would prevent outbound securities from flowing back into Ontario became less helpful.
The Proposed Rule would replace the Interpretation Note with four clear prospectus exemptions, three of which would require an issuer to file a relatively simple report with the OSC within 10 days of the distribution. The Proposed Rule also provides an exemption in certain circumstances from the dealer and underwriter registration requirements, which should facilitate greater access for Ontario issuers to the services of foreign dealers and their access to the global capital markets.
Comments on the Proposed Rule are due by September 28, 2016.