The Alberta Securities Commission yesterday published a blanket order to expand its exemption of certain issuers from the application of Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets.
As we've previously discussed MI 51-105 can subject issuers who carry out private placements to Canadian public company obligations. Adopted by every province other than Ontario, the instrument is intended to discourage the manufacture and sale of OTC quoted shell companies that can be used to facilitate abusive market practices.
In response to the concern that the instrument would have the unintended effect of subjecting major well-established issuers that trade OTC in the U.S. to Canadian public company reporting obligations, regulators in almost all Canadian jurisdictions that adopted MI 51-105 have issued blanket orders to exempt certain issuers from the application of the instrument (links to the orders are available on our Resources page).
Alberta's Blanket Order 45-514, released yesterday, replaces an earlier order that exempted the application of the instrument to issuers with a primary listing on certain stock exchanges or those distributing only non-convertible debt securities.
While preserving the exemptions from the previous order, the new order, has also adopted an investor-based exemption that exempts issuers that limit their promotional activities to "permitted clients" under NI 31-103 (essentially, institutional accredited investors). In doing so, Alberta's exemption is now more closely in line with the one adopted in Quebec.
Further, under section 2.1(1) of NI 33-105 Underwriting Conflicts, firms are prohibited from acting either as an underwriter in a distribution of securities in which it is the issuer or selling securityholder, or as a direct underwriter in a distribution of securities of or by a connected issuer or a related issuer of the specified firm registrant, unless the distribution is made under a prospectus or another document containing certain specified disclosure. Notably, the order also exempts firms from this prohibition where the distribution is made to "permitted clients" purchasing under a prospectus exemption.
The order also provides an exemption from the prohibition against making representations that a security will be listed or quoted on, or that an application has been made to list or quote a security on, any exchange or quotation and trade reporting system in the same circumstances. Similar relief has also been proposed by the OSC in April of 2013 (as discussed here in our post) but has yet to proceed beyond the proposal stage.
As a consequence of the order, issuers and dealers offering securities to “permitted clients” resident in Alberta under an exemption from the prospectus requirements may no longer be required to disclose to such investors any actual or potential conflicts of interest otherwise subject to the “connected issuer” and “related issuer” disclosure requirements contained within NI 33-105.
Ultimately, the order is intended to be an interim measure while the ASC continues to work with other members of the CSA to develop proposals to improve "sophisticated investors' access" to foreign issuers' securities.