The Canadian Securities Administrators (CSA) have adopted amendments to National Instrument 45-102 Resale of Securities (NI 45-102) and changes to Companion Policy 45-102CP which provide for a new prospectus exemption for the resale by Canadian investors of securities of non-Canadian issuers. The amendments are expected to come into force as of June 12, 2018. The amendments will be applied to all Canadian jurisdictions other than Alberta and Ontario.
In Alberta and Ontario, the new exemption will be found in the following local instruments:
- in Alberta, Alberta Securities Commission Blanket Order 45-519 Prospectus Exemptions for Resale Outside Canada (ASC Blanket Order 45-519); and
- in Ontario, Ontario Securities Commission Rule 72-503 Distributions Outside Canada (OSC Rule 72-503).
The amendments will apply if: (1) the issuer is not a reporting issuer in Canada, (2) the issuer is a foreign issuer, and (3) the resale is on an exchange or a market outside of Canada or to a person or company outside of Canada. The CSA deem a “foreign issuer” to be one that is not incorporated or organized under the laws in Canada unless specific facts suggest that the issuer has more than a minimal connection to Canada (such as the issuer has a head office in Canada or the majority of its directors or executive officers ordinarily reside in Canada).
Currently, NI 45-102 provides for an exemption if (1) the issuer is not a reporting issuer in Canada and the resale is on an exchange, or a market, outside of Canada or to a person or company outside of Canada, and (2) residents of Canada do not own more than 10% of the outstanding securities of the issuer and do not represent more than 10% of the total number of security holders.
The CSA have noted that they recognize that many foreign issuers without any other connection to Canada are having trouble meeting the 10% maximum Canadian ownership prong of the current exemption. Consequently, Canadian security holders of these non-Canadian issuers would have to hold the securities for an indefinite period. In some circumstances, non-Canadian issuers decide not to offer their securities in Canada to avoid doing the analysis of determining whether these ownership conditions will be met and thus, the opportunities for Canadian investors to participate in private placements with non-Canadian issuers are decreased.
Consequently, the CSA have determined that an alternative to the ownership condition is warranted for assessing whether an issuer has a minimal connection to Canada. The new exemption provides for this alternative. A security holder is exempted from the prospectus requirement for the resale of securities acquired under a prospectus exemption if the resale is on an exchange, or a market, outside of Canada or to a person or company outside of Canada and if the issuer of the securities is a foreign issuer as described above. The policy rationale for these amendments is consistent with the policy rationale for the current exemption in NI 45-102 – to provide an exemption for resales outside of Canada for the securities of an issuer having a minimal connection to Canada.