Earlier this year, the British Columbia Securities Commission (the “BCSC”) cease traded 53 companies with connections to British Columbia that trade on certain U.S. over-the-counter markets for failure to file financial statements and management’s discussion and analysis (“MD&A”) pursuant to British Columbia Instrument 51-509 – Issuers Quoted in the U.S. Over-the-Counter Markets (“BCI 51- 509”).

Under BCI 51-509, OTC issuers (as defined below) with significant connections to British Columbia are designated reporting issuers in British Columbia and are subject to continuous disclosure and other regulatory obligations in British Columbia, including the requirement to file financial statements and MD&A.

How do OTC issuers become “reporting issuers” in British Columbia?

BCI 51-509 defines an “OTC issuer” as an issuer that has issued securities that have been assigned a ticker symbol on the OTC Bulletin Board or Pink Sheets and that has not issued any securities that are also listed or quoted on: TSX Venture Exchange, The Toronto Stock Exchange, Canadian Trading and Quotation System Inc., New York Stock Exchange, American Stock Exchange, or NASDAQ Stock Market.

Under BCI 51-509, an OTC issuer is designated a “reporting issuer” in British Columbia (an “OTC reporting issuer”) where, on or after September 15, 2008:  

  • the OTC issuer’s business has been directed or administered in or from British Columbia;  
  • investor relations activities have been carried on in or from British Columbia by or on behalf of the OTC issuer; or  
  • the OTC issuer is assigned a ticker symbol for securities on the OTC Bulletin Board or Pink Sheets and, on or before the date that the ticker symbol is assigned, the OTC issuer has distributed a security to a person resident in British Columbia which is of the class of securities for which a ticker symbol on the OTC Bulletin Board or Pink Sheets has been assigned.

When is an issuer’s business directed or administered in or from British Columbia?

The companion policy to BCI 51-109 states that generally, an OTC issuer’s business is directed or administered in or from British Columbia if

  • its head office, or another office where executive functions take place, is located in British Columbia;
  • some or all of its directors are located in British Columbia; or
  • any director, officer, consultant or other person who carries out executive functions for the issuer does so from an office in British Columbia, or is resident in British Columbia.

What are investor relations activities?

“Investor relations activities” is defined under the Securities Act (British Columbia). The companion policy to BCI 51-109 states that an OTC issuer is carrying out investor relations activities in British Columbia if it communicates from anywhere with persons in British Columbia, or communicates from British Columbia with persons anywhere, in a way that promotes, or reasonably could be expected to promote, the purchase or sale of its securities. It also states that these activities would generally include providing information to potential investors who request information, or to potential private placement investors.

What are the requirements imposed on OTC reporting issuers?

An OTC reporting issuer is subject to all of the provisions of British Columbia securities legislation that apply to reporting issuers, including continuous disclosure obligations, corporate governance standards, and insider reporting requirements. In addition, there are additional reporting requirements that are imposed on OTC reporting issuer under BCI 51-109, such as the requirement to publicly file a notice with the BCSC describing the investor relations activities and the relationship with any investor relations person engaged by the issuer.

An OTC reporting issuer is also restricted from using some of the registration, prospectus, take-over bid and disclosure exemptions. In particular, BCI 51-109 imposes different resale restrictions on securities that are issued pursuant to exemptions from applicable registration and prospectus requirements by an OTC reporting issuer in certain circumstances.

Conclusion

BCI 51-509 will have repercussions for OTC issuers with connections to British Columbia. While OTC reporting issuers that have a class of securities registered in the Unites States may have exemptions from most of the BCI 51-509 continuous disclosure requirements, issuers that are unable to avail themselves of these exemptions or other exemptions are subject to significant continuous disclosure and reporting obligations.