Effective September 8, 2015, certain private placements of non-Canadian securities made to Canadian institutional investors that qualify as “permitted clients” will no longer require a “Canadian wrapper”.
Key conditions to new rules
The new rules require that certain conditions be satisfied:
- the offering must be conducted primarily in a non-Canadian jurisdiction;
- a concurrent distribution of the securities must be made by the issuer to investors in the U.S.;
- the securities must either be
- issued by a non-Canadian issuer that is not a reporting issuer in Canada and has its head office outside Canada and a majority of its executive officers and directors ordinarily resident outside Canada; or
- issued or guaranteed by the government of a non-Canadian jurisdiction;
- the Canadian clients must be “permitted clients” as defined in NI 31-103;
- the offering document delivered to Canadian clients must comply with applicable U.S. disclosure requirements and federal securities laws;
- certain prescribed notices must be provided to Canadian clients either in the offering document, accompanying the offering document, or, in advance of an offering, on a one-time basis.
We expect a practice already followed by some will gain momentum which will see the replacement in the offering document of the Canadian wrapper with a notice for Canadian residents. The notice would be identical across all offerings and would require no acknowledgment from the client or prospective client.
Certain issues are not addressed by new rules
After the new rules come into effect, the following representative Canada-specific issues will need to be considered:
- MI 51-105 Considerations: As a result of Multilateral Instrument 51-105 – Issuers Quoted in the U.S. Over-the-Counter Markets, issuers not listed or quoted on certain specified exchanges (such as the NYSE or NASDAQ), that undertake promotional activities in Canada (e.g. having a dealer call accounts and then sell securities to those accounts in Canadian provinces other than Ontario) may become reporting issuers in Canada with obligations to meet Canadian continuous disclosure requirements if the issuer’s equity securities trades over the counter. Since Ontario did not adopt the instrument and securities regulators in Quebec, Alberta and British Columbia have granted blanket exemptive relief orders excluding dealings with “permitted clients” from the burdens of the reporting requirements, a practice has developed to market these types of deal in Canada only in Ontario, Quebec, Alberta and British Columbia. These limitations were often described in the Canadian wrapper and will continue to be relevant post-September 8.
- Offerings Not Extended in the U.S.: A Canadian wrapper will normally be required if an offering document is used and the offering does not also concurrently extend to the U.S.
- Post-Trade Reports: Post-trade reporting obligations for sales into Canada remain unchanged and filings generally have to be done within 10 days of closing. For sales in Ontario and Alberta, there is a late filing fee of $100 per business day (per calendar day in Alberta) that the filing is late up to a total of $5,000 in each calendar year in each province.