Currently, the securities of non-Canadian issuers (Foreign Issuers) that are privately placed into Canada can be resold without being qualified by a Canadian prospectus, provided that:
- the trade is made through an exchange or a market outside of Canada or to a person or company outside of Canada; and
- Canadian residents do not own more than 10% of the Foreign Issuer’s outstanding securities or represent more than 10% of the total number of Foreign Issuer’s security holders (the “Canadian-Resident Ownership Restriction”).
If the Canadian-Resident Ownership Restriction is exceeded, the Foreign Issuer’s privately placed securities are not freely tradeable by Canadian security holders outside of Canada. This means that any resale of the securities either needs to be qualified by a prospectus or conducted on the basis of an alternative prospectus exemption.
Capital market participants increasingly have seen the Canadian-Resident Ownership Restriction as an impediment to extending prospectus-exempt offerings by Foreign Issuers into Canada. Although securities regulators have granted relief from the Canadian-Resident Ownership Restriction in some situations, the analysis and time required to obtain that relief has often dissuaded Foreign Issuers from extending a private placement into Canada.
In recognition of the increased globalization of capital markets, the Canadian Securities Administrators (CSA) decided to eliminate these impediments through rule amendments scheduled to take effect on June 12, 2018. In Ontario, the prospectus exemptions and related amendments will be incorporated into Ontario Securities Commission Rule 72-503 Distributions Outside Canada, which will consolidate all of the primary distribution and resale exemptions applicable in Ontario to cross-border activities into one instrument. In Alberta, the new exemption will be reflected in Alberta Securities Commission Blanket Order 45-519 Prospectus Exemptions for Resale outside of Canada. In the rest of Canada, the exemption will be incorporated into National Instrument 45-102 Resale of Securities.