On November 28, 2013, the Canadian Securities Administrators (CSA) in all jurisdictions except Ontario and British Columbia published for comment a proposed Multilateral Instrument 45-107 Listing Representation and Statutory Rights of Action Disclosure Exemptions (Proposed MI 45-107).
Proposed MI 45-107 provides exemptions from certain requirements of the securities legislation of the participating jurisdictions that apply in the context of prospectus exempt financings, conducted primarily in a foreign jurisdiction by foreign issuers and by investment dealers or international dealers acting as underwriters, and which are also offered to certain institutional and other sophisticated investors in Canada.
The purpose of Proposed MI 45-107 is as follows:
(1) to provide an exemption from the statutory prohibition against making a representation about the intention to list securities on an exchange or market in the context of international financings; and
(2) to provide an exemption from the requirement that applies in Saskatchewan, Nova Scotia and New Brunswick, that an offering document used in connection with a prospectus exempt distribution include a prescribed statement with respect to certain statutory rights of action.
Proposed MI 45-107 will codify discretionary exemptive relief that the CSA has been granting in the context of U.S. and international offerings of securities to Canadian institutional and other sophisticated investors and consequently will alleviate the need for these discretionary exemption applications.
The Proposed MI 45-107
Listing Representation Prohibition
At present, the participating jurisdictions have prohibitions for a person or company, that has the intention of effecting a trade in a security, on making a representation that the security will be listed on an exchange or quoted on a quotation and trade reporting system, or that application has been or will be made to list the security, unless consent or authorization, as applicable, is first obtained (the “listing representation prohibition”). Proposed MI 45-107 would provide an exemption from the listing representation prohibition provided that the offering is a private placement offering of “designated foreign securities” made only to “permitted clients”.
“Designated foreign securities” are defined in proposed MI 45-107 as securities offered primarily in a foreign jurisdiction that are either:
- issued by an issuer that
(a) is incorporated, formed or created under the laws of a foreign jurisdiction;
(b) is not a reporting issuer in a jurisdiction of Canada;
(c) has its head office outside of Canada; and
(d) has a majority of its executive officers and directors resident outside of Canada; or
- securities that are issued or guaranteed by the government of a foreign jurisdiction.
The term “permitted client” has the same meaning as in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
The CSA is attempting to address the following in Proposed MI 45-107:
(1) foreign issuers cannot typically rely on the existing statutory exceptions permitting a listing representation and must make an application to each of the securities regulators in Canada for relief from this prohibition;
(2) given the customary short timeframe for U.S. and international offerings, there may be difficulty in obtaining express consent in each applicable jurisdiction of Canada prior to using a foreign offering document in those Canadian jurisdictions; and
(3) the requirement for such applications adds to the time and costs associated with extending a foreign offering into Canada.
Offering Document Disclosure
In the context of exempt offerings in Canada conducted by issuers and by investment dealers or international dealers acting as underwriters, where an offering document has been prepared in accordance with foreign securities laws, the statutory rights of action disclosure requirement under Canadian Securities Laws is typically addressed either by amending the offering document for sales to investors in Canada or, more commonly, preparing a “wrapper” to be attached as a cover to the foreign offering document, thereby forming the offering document for purposes of offering securities in Canada.
Market participants have suggested that, in the context of exempt offerings conducted by U.S. issuers and dealers or other global offerings of foreign securities, the time and expense associated with retaining counsel and preparing a “wrapper” to meet these local requirements in Canada or, alternatively, making applications for relief from these requirements, discourages some foreign issuers and underwriters from extending foreign offerings into Canada. As these offerings are typically being made only to institutional and other sophisticated investors in Canada, Canadian securities regulators have been prepared to provide discretionary exemptive relief to permit the disclosure to be made in an alternative form. Proposed MI 45-107 would remove the need to make such applications in the provinces of New Brunswick, Nova Scotia, and Saskatchewan, in respect of a private placement of a designated foreign security to a permitted client, provided the specified firm registrant (i.e. a person or company registered, or required to be registered, under securities legislation as a registered dealer, registered adviser or registered investment fund manager) provides certain alternative disclosure of the statutory rights of action (for example, in a one-time notice that has been delivered to the permitted client by an investment dealer or international dealer acting as underwriter that is then signed by the permitted client).
Proposed MI 45-107 would not affect the statutory rights of action available to purchasers of securities in the applicable jurisdictions.
The CSA is also proposing amendments to National Instrument 33-105 Underwriting Conflicts (NI 33-105) to provide relief, in the context of these same U.S. and international offerings to institutional and other sophisticated investors, from the requirement in NI 33-105 to provide disclosure relating to connected and related issuers in a prospectus-exempt disclosure document. The proposed exemption from NI 33-105 will only apply where offerings by foreign issuers provide comparable alternative disclosure to purchasers.
Comments on Proposed MI 45-107 are due February 26, 2014.