Late last week, the Canadian Securities Administrators, other than the OSC, released for comment a proposed multilateral instrument that would essentially apply continuous disclosure requirements to OTC issuers that have a significant connection to a Canadian jurisdiction (including those that are already reporting issuers at the time the rule comes into force. An OTC issuer would be an issuer who has securities quoted on any U.S. OTC market, unless the issuer is also listed or quoted on another prescribed market. A significant connection would exist where (i) the OTC issuer's business was directed or administered in or from Canada; (ii)  promotional activities were conducted from Canada; or (iii) if the issuer distributed securities in Canada prior to obtaining a ticker symbol for the purpose of having its securities quoted on an OTC market in the U.S. and those securities became the issuer's OTC-quoted securities.

The rule is aimed at curbing the manufacture and sale in Canada of U.S. OTC quoted shell companies that can be used for abusive purposes. The BCSC adopted a similar rule back in 2008 which, according to the CSA notice, led to the migration of some OTC reporting issuers to other Canadian jurisdictions. In this respect, the proposed rule would also impose certain prohibitions and restrictions, including denying the use of certain exemptions, requiring that certain sales be made through registrants and imposing legend requirements.

Issuers subject to the instrument would generally have to comply with the continuous disclosure regime to which venture issuers are subject and, additionally, also file annual information forms (which venture issuers may do voluntarily, but are not required to). Once an issuer triggered the requirements, the OTC Rule would continue to apply for at least one year, continuing to apply after that time only if the issuer was directed or administered or carried out promotional activities in or from a Canadian jurisdiction. The CSA is accepting comments on the proposed instrument until September 9, 2011. For more information, see Proposed Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets.