Exciting news (kind of)! The securities regulatory authorities in British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick - not Ontario - recently announced that they are each adopting a prospectus exemption that allows issuers listed on a Canadian exchange to raise money by distributing securities to investors, provided they have obtained advice about the suitability of the investment from an investment dealer (i.e., not an exempt market dealer). This is a prospectus exemption only, i.e., there is no corresponding  registration exemption. Accordingly, the traditional registration business trigger analysis will still apply when  relying upon this new exemption. The stated purpose for this new exemption is to facilitate capital raising for  listed issuers and foster participation of retail investors in private placements, while maintaining appropriate investor protection. Some of the key conditions   are:

  • 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 must have filed all timely and periodic disclosure documents as required under securities legislation.

  • The offering can consist only of a listed security, a unit consisting of a listed security and a warrant to acquire another listed security, or another security convertible into a listed security at the security holder’s sole discretion.

  • The news release announcing the offering must disclose, in reasonable detail, the distribution, including use of proceeds, and any material fact not yet generally disclosed, and to include a statement that there is   no material fact or material change about the issuer that has not been generally    disclosed.

  • The investor must obtain advice regarding the suitability of the investment from an investment   dealer.

This exemption marks an interesting regulatory development.  The idea of doing away with the disclosure found  in a prospectus or offering memorandum is not new. This idea was bandied about 15 or 20 years ago as part of

regulatory discussions for an “integrated disclosure system” – a concept that never took hold. And reliance on suitability advice has for years been part of the Alberta version of the OM exemption. This new exemption marries  both concepts.

In practice, it will be interesting to see if investment dealers will have the economic and risk appetite to provide the suitability advice contemplated by this exemption. Who knows, if it works well, we may eventually see it  come to Ontario, much like the recent arrival of the OM   exemption.

See CSA Notice 45­-318 for more information.