On August 13, 2015, the Canadian Securities Administrators published for comment proposed amendments to National Instrument 45-106 – Prospectus Exemptions (Proposed Amendments) introducing a new harmonized report of exempt distribution (Proposed Form) that will apply across Canada for all issuers, including investment fund issuers.
Currently, issuers distributing securities and relying on certain prospectus exemptions must file a report of exempt distribution. In all provinces and territories, except for British Columbia, the form of report is Form 45-106F1 - Report of Exempt Distribution. In BC, the form of report is Form 45-106F6 – British Columbia Report of Exempt Distribution (collectively, the Current Forms). The Proposed Form would replace the Current Forms.
As readers may recall, the CSA published for comment two previous proposals in February and March 2014 regarding amendments to the exempt market reporting rules. In preparing the Proposed Form, the CSA reviewed and considered the comments submitted to the prior proposals. The Proposed Form dropped some of the information requirements originally proposed in 2014, while adding new required information.
Purpose of the Proposed Form
The purported purpose of the Proposed Form is to reduce the compliance burden for both issuers (investment fund and non-investment fund issuers) and underwriters by having a harmonized report of exempt distribution. However, the Proposed Form will potentially increase the compliance burden by requesting substantially more information (particularly for distributions made outside of BC). Securities regulators are seeking this information to aid with regulatory oversight and to improve policy development for the exempt market.
Summary of the Proposed Form
The Proposed Form would require disclosure of the following information:
- identifying information such as the issuer’s System for Electronic Document Analysis and Retrieval (SEDAR) profile number and the registrant firm’s National Registration Database (NRD) number, the legal entity identifier under the Global Legal Entity Identifier System and CUSIP number of the issuer;
- details about the issuer including its size and primary business activity;
- identities of the directors, executive officers, control persons and promoters of certain issuers;
- details about investment fund issuers including type, size of fund (net asset value), the general category of the fund and net proceeds to the fund;
- details about the securities distributed and, for certain jurisdiction, details about the documents provided in connection with the distribution;
- specific details about the exemptions relied on; and
- details about compensation paid to registrants, connected person, insiders and employees of the issuer or the investment fund manager involved in the distribution.
In an effort to streamline the Proposed Form, in some cases, the Proposed Form will not require certain information that can be gathered through an issuer’s continuous disclosure filings, an issuer’s profile on SEDAR or a registrant firm’s NRD profile.
Key Differences Between the Proposed Form and the Current Forms
The information below is an example of some of the new requirements included in the Proposed Form (particularly for distributions made outside of BC):
- All issuers would have to indicate their number of employees by selecting from four broad ranges of employee numbers, serving as a proxy for the size of the issuer.
- For issuers that do not have a SEDAR profile, the Proposed Form would require the following disclosure: (i) date of formation; (ii) financial year-end; (iii) jurisdictions where reporting; (iv) stock exchange listings and (v) size of assets.
- Currently, the British Columbia Securities Commission’s Form 45-106F6 requires disclosure of the name, title and province, state or country of residence of directors, executive officers, control persons and promoters of certain non-reporting and non-investment fund issuers. As well, if the control person or promoter is not an individual, the information described above would also be required for the directors and executive officers of that control person or promoter. These requirements would be extended to all other jurisdictions currently using Form 45-106F1. The Proposed Report would not require this information from: (i) reporting issuers and their wholly owned subsidiaries; (ii) foreign public issuers and their wholly owned subsidiaries; and (iii) issuers distributing eligible foreign securities only to permitted clients.
- Directors, executive officers, control persons and promoters of non-investment fund issuers would be required to disclose the number and total amount paid for voting securities of the issuer beneficially owned or directly or indirectly controlled. This type of information is currently required under Form 45-106F6 for distributions in BC and would be extended to all other jurisdictions currently using Form 45-106F1.
- While the Current Forms require a description of the type of securities distributed, the Proposed Form would require this information to be provided in a more structured format, using specific 3-letter codes.
- For distributions made under the securities legislation of Ontario, Saskatchewan, Quebec, New Brunswick and Nova Scotia, the Proposed Report would require filers to list all offering materials that are required to be filed or delivered in connection with the distribution (for example, offering memoranda provided to prospective purchasers).
- Certain compensation information for the distribution would be required under the Proposed Form such as, whether the person being compensated is a registrant or insider of the issuer (currently only required under Form 45-106F6) and whether that person is an employee of the issuer or connected to the issuer.
- Lastly; information on the exemption that a purchaser relies on will also be amended by the Proposed Form. The issuer or underwriter would have to identify the exemption relied upon in more detail than what is required under the Current Forms, including stating the section, subsection and paragraph of the exemption relied upon, where applicable. The Proposed Form would only require the issuer or underwriter to identify one category (as opposed to all categories for which a purchaser is eligible).
While a longer-term CSA project is underway to create a single integrated filing system for the Proposed Form (further reducing regulatory burden on market participants), the Proposed Form is currently designed to be filed using the electronic filing systems currently used in Ontario and BC. In other jurisdictions, the Proposed Form will be filed directly to each applicable securities regulatory authority and regulator. The CSA is also considering how the Proposed Form can be filed using SEDAR for all jurisdictions.
In cross-country distributions, the CSA anticipates that a party would be able to file the Proposed Form by completing the Ontario Securities Commission’s electronic form and subsequently filing that same report on the BCSC’s eServices system and SEDAR.
All issuers required to file a report of exempt distribution, including investment funds that file annually, will be required to file the Proposed Form beginning on the date the Proposed Amendments come into force.
Investment funds filing on an annual basis will be expected to file the Proposed Form within 30 days after their financial year end until the end of the calendar year that the Proposed Amendments come into force.
The CSA is publishing the proposed amendments for a 60-day comment period ending on October 13, 2015. The CSA notice and Proposed Report can be found here or on the CSA members’ websites.