On March 25, the Canadian Securities Administrators (the CSA) published for comment the proposed National Instrument 41-103 – Supplementary Prospectus Disclosure Requirements for Securitized Products and National Instrument 51-106 – Continuous Disclosure Requirements for Securitized Products (together, the Proposed Rules), along with proposed amendments to National Instrument 52-109 – Certification of Disclosure in Issuers Annual and Interim Filings, National Instrument 45-106 –Prospectus and Registration Exemptions (NI 45-106) and National Instrument 45-102 – Resale of Securities (collectively, the Proposed Amendments, and together with the Proposed Rules, the Proposal).

According to the CSA, the Proposal contains four main features:

  1. Enhanced prospectus disclosure requirements for securitized products issued by reporting issuers;
  2. New prospectus exemption rules for securitized products that require, in most cases, the delivery of an “information memorandum” to investors and narrow the class of investors who can buy securitized products on a prospectus exempt basis.

Specifically, the Proposal would make a number of prospectus exemptions currently in NI 45-106 unavailable for distributions of securitized products, including: section 2.3 (the accredited investor exemption), section 2.4 (the private issuer exemption), section 2.9 (the offering memorandum exemption) and section 2.10 (the minimum amount investment exemption). These exemptions would be replaced by a new prospectus exemption for investors who are fit into the narrower proposed definition of “eligible securitized product investor”;  

  1. Prospectus level liability for issuers, sponsors and underwriters, including CEO certification of “information memoranda”; and
  2. Continuous disclosure and prescribed monthly reporting obligations for both reporting issuers and issuers in the exempt market.

The Proposal contains significant, and in many cases, onerous requirements which will have a material impact on a Canadian industry with a very positive track record of performance.

The CSA is accepting comments on the Proposed Rule until June 25, 2011.

We will be posting detailed future commentary on these proposed rules with a view to creating the broadest possible discussion among market participants. We encourage you to let us know your views.