On June 30, 2016, the Ontario Securities Commission (OSC) published for comment Proposed Rule 72-503 Distributions Outside of Canada (the Proposed Rule) that would:
Purpose of the Proposed Rule
The purpose of the Proposed Rule is to provide Ontario market participants with greater certainty in cross-border transactions. Historically, the only guidance on the application of the prospectus requirements to distributions outside Ontario has been a note published by the OSC in 1983 entitled “Interpretation Note 1 Distributions of Securities Outside Ontario” (the Interpretation Note), which provided that neither a prospectus nor a prospectus exemption is required when the securities distributed outside Ontario “come to rest” with investors outside of Ontario. This requires a rigorous analysis of whether the circumstances of the cross-border offering would result in flow back or an indirect distribution occurring in Ontario, and a consideration of steps to take to ensure such flow back or indirect distribution does not occur.
Over time, as the OSC’s approach to distributions outside Canada has evolved with global market practices, as has case law on provincial jurisdiction over activities outside the province, the Interpretation Note has become outdated, thereby creating undesirable uncertainty around the extent of the application of the prospectus requirement and the registration requirement for these distributions. The Proposed Rule would replace the 33-year old Interpretation Note and remove this uncertainty by providing explicit prospectus exemptions and align current market practices and OSC staff’s current practice.
The Proposed Rule provides four explicit exemptions from the prospectus requirement for certain distributions of securities outside Canada that comply with the laws of the foreign jurisdiction, namely:
As a result, Ontario issuers would be able to rely on these prospectus exemptions in most cross-border offering scenarios, including initial public offerings (IPO), bought deals or other secondary offerings, and private placements in foreign jurisdictions. Ontario issuers and selling security holders would have the following options under the Proposed Rule:
Dealer and Underwriter Registration Exemptions
The Proposed Rule also provides an exemption from the dealer and underwriter registration requirement for distributions of securities outside Canada if all of the following conditions are met:
This exemption will assist Ontario issuer’s to engage the services of a foreign dealer to distribute securities in the US or other designated foreign jurisdictions. It will also eliminate the uncertainty relating to whether registration requirements of Ontario dealers and underwriters are applicable to these distributions.
In relying on the Concurrent Prospectus Exemption, the Reporting Issuer Exemption or the Other Distributions Exemption under the Proposed Rule, issuers will be required to file a short post-closing report of the exempt distribution with the OSC within ten days of the distribution date, in the format of the new Form 72-503F. This report only requires a description of the offering and does not require identifying the names of, or any other information about, the non-Canadian purchasers as a conventional private placement trade report would for an exempt distribution under NI 45-106.
All comments should be submitted to the OSC in writing by September 28, 2016. The full text of the Proposed Rule and further instructions relating to public comment can be found here.