As we approach the end of the year, we have summarized some key developments in 2015 with respect to blanket relief issued in connection with Multilateral Instrument 51-105 Issuers Quoted on the U.S. Over-the-Counter Markets (MI 51-105 or the Instrument). We saw enhanced relief emerge in 2015 as blanket orders issued in British Columbia, Nova Scotia, New Brunswick, Yukon and Saskatchewan allow distributions to permitted clients to be exempt from MI 51-105 obligations under certain conditions. We have summarized the blanket relief available under MI 51-105, as of today, in the chart below.
Click here to view table.
As we've previously discussed MI 51-105 can subject issuers who carry out certain types of investment activities in certain provinces to Canadian public company-type obligations. Adopted by every province other than Ontario, MI 51-105 is intended to discourage the manufacture and sale of OTC-quoted shell companies that can be used to facilitate abusive market practices.
In response to the concern that MI 51-105 would have an unintended and overreaching impact, regulators in almost all Canadian jurisdictions that adopted MI 51-105 have issued blanket orders to exempt certain issuers from the application of the Instrument. Four types of blanket relief are available.
- Relief for distributions to permitted clients.
Some provinces allow blanket relief for distribution to “permitted clients” as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. This form of relief is new for 2015 in British Columbia, New Brunswick, Nova Scotia, Saskatchewan and the Yukon. Alberta issued blanket relief in respect of distributions to permitted clients in 2014. Quebec’s blanket order is similar to the other provinces except that it requires the involvement of a registered investment dealer, exempt market dealer or dealer relying on the international dealer exemption.
- Relief for issuers listed on certain exchanges
Each of the blanket orders expands on the list of exchanges recognized for the purposes of exempting issuers with a class of securities listed for trading on the same from application of the Instrument.
For the Manitoba, Newfoundland and Labrador, Northwest Territories, Nunavut and Prince Edward Island blanket orders (i.e. the jurisdictions that don’t have the permitted client relief), there is an additional requirement. The issuer must have a “primary listing” in effect each time the issuer carries on any promotional activities in or from the relevant jurisdiction or distributes securities to a person resident in the relevant jurisdiction. These blanket orders define “primary listing” to mean an issuer’s first listing of a class of its securities on any of the foregoing designated exchanges. By its terms, the Instrument would not apply to any issuer listed on any of the North American stock exchanges prescribed in the Instrument.
- Relief related to non-convertible debt securities
Each of the provinces and territories of Canada (except for Alberta) provide for an exemption from MI 51-105 for issuers that distribute certain securities to investors resident in the relevant jurisdiction, provided the issuer does not have any class of securities, other than non-convertible debt securities, listed on an exchange or quoted on a quotation and trade reporting system.
The blanket orders in Manitoba, Newfoundland, the Northwest Territories, Nunavut, Prince Edward Island and Quebec only permit non-convertible debt securities to be distributed pursuant to this exemption. Importantly, while the remainder of the provinces (being British Columbia, New Brunswick, Nova Scotia, Saskatchewan and Yukon) require that no securities other than non-convertible debt be listed or quoted, the blanket orders in these provinces permit any securities to be distributed under the exemption.
- Relief for investment funds in Quebec
The blanket order issued by the AMF also exempts any issuer that is investment fund from the application of the Instrument in its entirety. An “investment fund” is defined in applicable securities legislation to include both closed-end funds and mutual funds.