The Ontario Securities Commission (the “OSC”) has adopted OSC Rule 72-503 Distributions Outside Canada (the “Rule”) along with Companion Policy 72-503CP (“72-503CP”), both of which will come into force on March 31, 2018.
The purpose of the Rule is to replace the OSC’s longstanding Interpretation Note 1 Distributions of Securities of Ontario (the “Note”) and to provide issuers and underwriters with clarity and more certainty on the application of Ontario prospectus and dealer registration requirements when distributing securities outside Canada.
The Note, which was published over 30 years ago, stated that when an issuer and its intermediaries had taken “reasonable precautions” to ensure that securities distributed outside Ontario would “come to rest” with investors outside Ontario and would not “flow back” into Ontario, such distributions did not require a prospectus or reliance on an exemption from the prospectus requirement.
The Rule includes exemptions which formalize and preserve current cross-border practices and responds to challenges issuers and intermediaries face in determining whether a prospectus must be filed in connection with a distribution of securities to an investor outside Canada.
The Rule includes four prospectus exemptions, one dealer registration exemption and one new form (Form 72-503F) to report distributions which are made outside Canada and which rely on these new exemptions.
Under the Rule, four new exemptions from the Ontario prospectus requirements are available:
Canadian Reporting Issuer Exemption: Distributions outside Canada where the issuer of securities is and has been a reporting issuer in a Canadian province or territory immediately preceding the distribution outside Canada and the distribution is made in accordance with foreign securities laws.
Concurrent Canadian Prospectus Exemption: Distributions of securities outside Canada made concurrently with a prospectus offering in Ontario made in accordance with foreign securities laws.
Foreign Public Offering Exemption: Public offerings of securities made in the US or “specified foreign jurisdictions” provided that a receipt, notice of effectiveness or similar acknowledgment of regulatory approval of the offering document has been obtained.
The list of “specified foreign jurisdictions” is identical to the list of “designated foreign jurisdictions” set out in National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers, which names Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland and the United Kingdom.
Restricted Canadian Resale Exemption: All other distributions by non-reporting issuers in a jurisdiction outside Canada made in accordance with foreign securities laws.
Any securities distributed pursuant to the first three new prospectus exemptions will not have any hold period and will, therefore, be capable of being traded freely and sold back into Canada without any restriction.
Any securities distributed under the fourth exemption would remain subject to resale restrictions with respect to sales back into Canada. A resale back into Canada is considered a distribution unless it is traded to a person or company outside Canada; or the issuer is and has been a reporting issuer in a Canadian province or territory for the four months preceding the resale and at least four months have elapsed since the distribution date.
Exemption from the Dealer and Underwriter Registration Requirements
The dealer registration requirement and the underwriter registration requirement will not apply to a person or company acting in connection with a distribution outside Canada that falls under an exemption under Ontario securities law that has its head office or principle place of business in the United States, a specified foreign jurisdiction, or a jurisdiction in Canada.
Filing a Report of Distribution Outside of Canada
An issuer, other than an investment fund, will be required by Form 72-503F to report a distribution outside Canada on or before the tenth day after the distribution date. An investment fund will not be required to file this report if the seller electronically files a Form 45-106F1 not later than 30 days after the end of the calendar year in which the distribution occurred that also includes the information required in Form 72-503F.
For further information regarding offering securities outside of Ontario, please contact Philip Long or a partner in our Capital Markets and Securities group in Ontario.