On April 16, 2015, the securities regulators in British Columbia, New Brunswick and Saskatchewan published for comment Multilateral CSA Notice 45-315 – Proposed Prospectus Exemption for Certain Distributions through an Investment Dealer whereby the regulators proposed a new prospectus exemption that, if approved, would greatly increase the potential private placement investor base for a listed issuer (Retail Exemption). The Retail Exemption is meant to recognize that many retail investors are unable to access private placements, which typically offer securities at a discount to the market price. Because most retail investors do not fall under the definition of “accredited investor”, issuers do not have a prospectus exemption to rely on as required in a private placement. The result is that most retail investors are purchasing their securities through secondary public markets, relying on information provided through the continuous disclosure record of the issuer and often with advice from an investment dealer.
The Retail Exemption is meant to allow retail investors to participate in private placements through a prospectus exemption in a manner similar to how investors are currently purchasing securities on the public markets. The main requirements of the Retail Exemption are that the issuer offering the securities must be a reporting issuer in Canada with up to date continuous disclosure filings and listed on a Canadian exchange (Toronto Stock Exchange, TSX Venture Exchange, Canadian Stock Exchange or Aequitas Neo Exchange Inc.) and that the investor must obtain advice regarding the suitability of the investment from an investment dealer. Because the intention is to have the investor rely on the advice from the investment dealer and the continuous disclosure record, no further offering document would be required. The Retail Exemption is not available if the investment dealer providing advice to the investor is a restricted or exempt market dealer.
Some of the other significant requirements are as follows:
- the offering must be of the security listed on the applicable exchange, a unit consisting of the listed security and a warrant exercisable into such security, or a security convertible into the listed security;
- a news release must be issued announcing the offering with certain prescribed information;
- investors must be provided a contractual right of action for any misrepresentations in the issuer’s continuous disclosure record or in any offering document, if produced; and
- securities offered would be subject to a four month plus one day resale restriction and issuers would be required to file reports of exempt distribution with respect to the offering.
Based on the proposal, the Retail Exemption appears to be a broad prospectus exemption which would allow listed issuers to expand the available investors of a private placement to include most retail investors. The main factor limiting the usefulness of the proposed Retail Exemption is that currently it appears that it will be available only in British Columbia, New Brunswick and Saskatchewan. The comment period for the Retail Exemption proposal concluded on June 15, 2015 and the regulators are now reviewing the responses.