BLANKET ORDER 45-514 RE CERTAIN PRIVATE PLACEMENTS
By blanket order granted November 20, 2014, the Alberta Securities Commission (ASC) removed barriers to participation by institutional investors in private placements by foreign issuers by addressing three requirements that are unique to Canada. The order grants:
- An exemption from Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets (MI 51-105), which may cause certain issuers having a class of securities quoted on a U.S. over-the-counter market to become subject to Canadian ongoing disclosure requirements
- An exemption from the requirement to provide underwriter conflicts disclosure under National Instrument 33-105 Underwriting Conflicts (NI 33-105), both on the front page and in the body of an offering document
- An exemption from the requirement to obtain written permission of the executive director under paragraph 92(3)(b) of the Securities Act (Alberta) to make representations that a security will be listed on an exchange or that application has been made to list a security on an exchange.
The only conditions are that (1) the securities be distributed under an exemption from the prospectus filing requirement and (2) the distribution (and promotional activities in the case of MI 51-105) in Alberta be restricted to “permitted clients,” a narrower category than “accredited investor.” The relief applies to both foreign issuers and Canadian issuers, reporting issuers and non-reporting issuers, and offerings that are made primarily in Canada as well as offerings made primarily outside Canada. The exemptive relief is available to all dealers entitled to distribute securities to permitted clients in Alberta without a requirement to provide those permitted clients with a notice or to receive back from them an acknowledgment. The blanket order does not deal with statutory rights of action because, unlike Ontario and certain other provinces, Alberta securities legislation does not have statutory rights of rescission or damages for misrepresentation in an offering memorandum.
The blanket order expires November 20, 2017, while the ASC continues to work with the other Canadian securities regulators on rulemaking that would replace the blanket order.
The ASC granted the blanket order on the basis that the three provisions listed above impose unnecessary and unintended constraints on private placements to Alberta institutional investors. As a result of MI 51-105, offerings were being made available to institutional investors in Ontario and Quebec, but not elsewhere in Canada.
The MI 51-105 exemption corresponds to an exemption previously granted by Quebec’s Autorité des marchés financiers (AMF). The exemption from obtaining permission to make representations with respect to listing is narrower than a blanket order that has been provided by the British Columbia Securities Commission, which applies to the retail as well as the institutional market. Where the Alberta blanket order breaks new ground is in expanding the AMF’s MI 51-105 exemptive relief to apply to the underwriter conflicts disclosure requirements of NI 33-105.
The MI 51-105 exemption is available for both promotional activities carried on in or from Alberta and the distribution of a security to an Alberta permitted client. It replaces the exemptive relief previously granted by the ASC in Blanket Order 51-513 Re Relief from Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets, while retaining the earlier blanket order’s exemptive relief for an issuer that has securities listed on an exchange designated in the order.
Wrapper Exemption Discretionary Orders
Beginning in April 2013, the Canadian securities regulators have granted time-limited exemptive relief to at least 120 registered dealers and exempt international dealers in offering to permitted clients in Canada securities of foreign issuers that are not reporting issuers as part of offerings of securities made primarily in a foreign jurisdiction. See our April 2013 Blakes Bulletin: Canadian Securities Regulators Exempt Foreign Offerings from Canadian Wrapper Requirement for more details. These are generally called the wrapper exemption orders because they have enabled many offerings by foreign issuers to be extended into Canada without a “wrapper” to satisfy specific Canadian disclosure requirements.
However, the exemption from the NI 33-105 disclosure requirements was made available for offerings of securities of non-government issuers only if the offering document complies with the underwriter conflicts disclosure requirements applicable to U.S. registered offerings. This has proven to be a major impediment for the large number of offerings that are not registered in the United States. The requirement for “related issuer” disclosure in the body of the offering document in the case of offerings of non-investment grade government debt has proven in practice to be an even greater impediment to use of the wrapper exemption because of the unwillingness of that fast-moving market to address the applicability or not of Canadian legal requirements on an offering-by-offering basis.
Proposed Wrapper Exemption Rulemaking
The Canadian securities regulators released for comment in November 2013 proposed amendments to NI 33-105 and a proposed multilateral instrument to make the time-limited relief in the wrapper exemption orders permanent and available to all market participants. See our December 2013 Blakes Bulletin: Canadian Wrapper Exemptions for Foreign Offerings Proposed as Rules for additional information. These initiatives proposed to ease some of the procedural conditions to reliance on the wrapper exemption orders. However, as pointed out in comment letters by Canadian mutual fund managers (RBC Global Asset Management Inc. and AGF Investments Inc.), Canadian managers of pension fund money (Alberta Investment Management Corporation, Caisse de dépôt et placement du Québec and Ontario Teachers’ Pension Plan Board), as well as the U.S. Securities Industry and Financial Markets Association, which represents the U.S. broker-dealers, the proposals did not alleviate the larger impediments to the extension to Canadian institutional investors of offerings of non-investment grade foreign government debt and of securities of other foreign issuers where the offering is not registered in the United States.
Exemptions from MI 51-105
On MI 51-105 coming into effect on July 31, 2012 in all provinces except Ontario, the AMF issued a blanket decision that included a simple, broad exemption where promotional activities in Quebec are restricted to permitted clients, while the other provincial regulators issued blanket orders with two more complex exemptions, including an exemption that depended on the exchange on which a class of the issuer’s securities were first listed. In the case of offerings of securities of foreign issuers, the restriction to permitted clients meshes with the restriction on exempt international dealers being able to offer and sell securities only to permitted clients. The result has been large numbers of offerings of foreign issuers being extended to Canadian institutional investors in Ontario and Quebec only, even offerings where the consequences of MI 51-105 would not apply because the analysis was too time-consuming.
The new Alberta blanket order eliminates any impediment to a typical offering of foreign securities being extended to institutional investors in Alberta. Foreign securities can now be sold into Alberta without any need to prepare an Alberta-specific wrapper.
Will global offerings of securities generally be extended into Alberta without an Alberta investor taking the initiative? Not necessarily because foreign dealers may decide not to sell solely into Alberta even though it now has in place a regulatory regime that is more open to offerings of foreign securities than the rest of Canada. It remains to be seen whether the other Canadian securities regulators will follow Alberta’s lead, either through blanket order—an option not available to the Ontario Securities Commission—or changes to the proposed wrapper exemption rulemaking.