On April 23, 2013, Canadian securities regulators provided exemptive relief from certain disclosure requirements to a group of dealers in connection with private placements of foreign securities to Canadian purchasers (the Exemptive Relief). Shortly after granting the Exemptive Relief, the Ontario Securities Commission (OSC) published for comment proposed amendments to OSC Rule 45-501 Ontario Prospectus and Registration Exemptions and NI 45-106 Prospectus and Registration Exemptions (collectively the Proposed Amendments).
The Exemptive Relief and the Proposed Amendments, if enacted, will reduce the disclosure currently contained in Canadian “wrappers” that accompany foreign offering documentation and will facilitate the offering of foreign securities to sophisticated investors in Canada.
When a foreign offering of securities is extended on a private placement basis to Canadian purchasers, it is necessary for the foreign offering documentation to be supplemented by additional Canadian disclosure. This additional disclosure is generally contained in a supplemental document known as a “wrapper.” The additional information includes:
- disclosure as to whether the issuer is a related or connected issuer of the underwriter as prescribed in National Instrument 33-105 Underwriting Conflicts (connected and related issuer disclosure).
- disclosure of the statutory right of action for damages or rescission an investor may have if the offering memorandum contains a misrepresentation (statutory rights disclosure). Only Ontario, Saskatchewan, New Brunswick and Nova Scotia require this disclosure.
- notification to and authorization from the investor regarding collection of personal information.
Issuers are also currently prohibited from making any representations in the offering documentation as to the listing of securities on a stock exchange. Complying with these additional requirements can be costly and time-consuming and may discourage issuers and dealers from extending a foreign offering into Canada, thereby depriving Canadian investors of important investment opportunities.
Exemptive relief granted
The application for relief was made by a group of dealers actively involved in foreign offerings and who would regularly consider whether to extend such offerings to sophisticated investors in Canada. The effect of the Exemptive Relief is that connected and related issuer disclosure and statutory rights disclosure need not be provided in an offering document provided certain conditions are met, including:
- the securities must be offered primarily in a foreign jurisdiction;
- the securities must be issued by a foreign issuer or issued or guaranteed by a foreign government. A foreign issuer is an issuer that is incorporated or created under the laws of a foreign jurisdiction, is not a reporting issuer, has its head office outside Canada and is not an investment fund as defined in securities legislation;
- the securities must be offered under a prospectus exemption to investors in Canada who qualify as permitted clients. Permitted clients are defined in National Instrument 31- 103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and are more narrowly defined than accredited investors;
- a prescribed form of notice and acknowledgement stating that the Exemptive Relief is being relied upon and setting out the potential statutory rights and underwriting conflicts must be delivered to and signed by the permitted client. This notice must be given before the Exemptive Relief can be relied upon but is not required to be delivered in respect of each offering; and
- the offering documentation must contain the disclosure of underwriter conflicts required under US law for a US-registered offering, regardless of whether or not it is a US-registered offering or, in the case of securities issued or guaranteed by a foreign government, either the underwriter conflicts disclosure required for a US-registered offering or the prescribed underwriter conflicts disclosure required by the Canadian rules must be included.
The applicants also received separate permission to include listing representations in offering documentation. Finally, the applicants were further provided with comfort from the OSC that a personal information authorization was only required where the purchasers are individuals.
Timing of relief
The Exemptive Relief granted will not take effect until 60 days after April 23, 2013, to allow other parties who wish to seek similar relief to do so. The Exemptive Relief will expire on the earlier of (i) the date Canadian securities legislation is amended to provide substantially the same relief; or (ii) the date that is three years after the decision takes effect.
Ontario Securities Commission proposal
On April 25, 2013, the OSC issued the Proposed Amendments for public comment. The Proposed Amendments are only an initiative of the OSC and are narrower than the Exemptive Relief in that they do not exempt the requirement to make connected and related issuer disclosure. The OSC notice states that the OSC and the other Canadian securities administrators are considering amendments to National Instrument 33-105 Underwriting Conflicts to provide relief from connected and related issuer disclosure when offerings are made by foreign issuers.
The Proposed Amendments, if enacted, would exempt certain disclosure currently required to be included in a Canadian wrapper in connection with an offering of foreign securities in Ontario to permitted clients by:
- allowing registered dealers or international dealers to give purchasers notice of their statutory rights by delivery of a one-time notice and acknowledgement. This will avoid the necessity of including the statutory rights disclosure every time a private placement is made in Ontario;
- providing relief from the listing representation prohibition; and
- providing clarification that the collection of personal information authorizations is only required if the permitted clients are individuals.