On August 13, 2015, the Canadian Securities Administrators (“CSA”), published for a 60-day comment period proposed amendments (the “Proposed Amendments”) to National Instrument 45-106 Prospectus Exemptions (“NI 45-106”) which would introduce a new harmonized report of exempt distribution (the “Proposed Report”) and make related changes to Companion Policy 45-106CP Prospectus Exemptions (“45-106CP”).
When an issuer distributes securities relying on certain prospectus exemptions, they are currently required to file a report of exempt distribution within the prescribed timeline. The form of the report is Form 45-106F1 Report of Exempt Distribution (“Form 45-106F1”) in all CSA jurisdictions, except for British Columbia, where the form of report is Form 45-106F6 British Columbia Report of Exempt Distribution (“Form 45-106F6”, which together with Form 45-106F1 are referred to as the “Current Reports”). The Proposed Amendments would replace the Current Reports with the Proposed Report. The harmonization of the Proposed Report is intended to:
- reduce the compliance burden for issuers and underwriters; and
- provide securities regulators with the necessary information to facilitate more effective regulatory oversight of the exempt market and improve analysis for policy development purposes.
As set out in the Proposed Amendments, the Proposed Report will require disclosure of the following information:
- details about the issuer including its size, primary business activity, number of employees and identifiers;
- identities of the directors, executive officers, control persons and promoters of non-investment fund issuers and their residential address (subject to the carve-outs listed below);
- business contact information for the chief executive officer of the issuer;
- details about the number and total amount paid for voting securities of the issuer beneficially owned or directly or indirectly controlled by directors, executive officers, control persons and promoters of non-investment fund issuers (subject to the carve-outs listed below);
- details about the securities distributed and, for certain jurisdictions, details about the documents provided in connection with the distribution;
- specific details about the exemptions relied on, both on an aggregate and per investor basis;
- identification of whether the purchaser is an insider of the issuer or a registrant;
- identification of each person or firm being compensated for each purchaser; and
- details about compensation paid to registrants, connected persons, insiders and employees of the issuer or the investment fund manager involved in the distribution.
In addition, the Proposed Report also requires investment fund issuers to provide disclosure regarding the size of the fund, the general category of the fund and net proceeds to the fund.
The Proposed Report contemplates carve-outs from certain information requirements for:
- investment fund issuers;
- reporting issuers and their wholly owned subsidiaries;
- foreign public issuers and their wholly owned subsidiaries; and
- issuers distributing eligible foreign securities only to permitted clients.
The Proposed Report has been streamlined, therefore it does not require certain information that can be obtained through an issuer’s continuous disclosure filings, an issuer’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) or a registrant firm’s National Registration Database profile. If an issuer does not have a SEDAR profile, they will be required to disclose the following in the Proposed Report:
- date of formation;
- financial year-end;
- jurisdiction where reporting;
- stock exchange listings; and
- size of assets.
The Proposed Report has been designed to be filed using the current filing systems available in the CSA provinces, including electronically in British Columbia and Ontario. In addition, the CSA has also considered how the Proposed Report could be filed using SEDAR, as contemplated by an initiative of all CSA jurisdictions other than British Columbia and Ontario. In situations when there is a cross-country distribution, the CSA anticipates that an issuer or underwriter would be able to file the Proposed Report by completing the OSC’s electronic form and subsequently filing an electronic copy of the report generated by the OSC’s system on BCSC eServices and SEDAR. Moreover, an issuer or underwriter that prepares a report for filing on SEDAR would be able to file that same report on BCSC eServices and vice versa. A longer-term CSA initiative is underway to create a single integrated filing system for reports of exempt distribution which would further reduce the regulatory burden on market participants. A Request for Proposal in connection with this project was released and responses are currently being evaluated.
Once the Proposed Amendments come into force, all issuers including investment funds that file annually, will be required to file the Proposed Report when a report of exemption distribution is required.
Investment funds using certain prospectus exemptions currently have the option to report annually within 30 days after their financial year-end. The Proposed Amendments would change the deadline for investment funds reporting annually to be within 30 days after the calendar year-end (by January 30) to improve the comparability and timeliness of the information collected. The Proposed Amendments do provide a transition period for the change in the filing deadline for- investment funds. Investment funds filing on an annual basis would be expected to file the Proposed Report within 30 days after their financial year-end until the end of the calendar year that the Proposed Amendments come into force. As set out in the Proposed Amendments, by January 30 of the calendar year following the coming into force of the Proposed Amendments, all investment funds that file annually would be required to conform to the amended filing deadline requirement.
The comment period for the Proposed Amendments will end on October 13, 2015. For more information, please refer to https://www.bcsc.bc.ca/Securities_Law/Policies/Policy4/PDF/CSA_Notice_and_Request_for_Comment__August_13__2015/