The Canadian Securities Administrators (the CSA) have published proposed amendments to National Instrument 31-103 Registration Requirements, Exemptions And Ongoing Registrant Obligations (NI 31-103) on December 5, 2013 (the Proposed NI 31-103 Amendments), which included, among other things, a new short-term debt registration exemption under s. 8.22.1 of NI 31-103 (the Proposed registration exemption).
Currently, all CSA members except Ontario, have issued parallel exemptive relief orders (the blanket orders) where the dealer registration requirement does not apply to trades in short-term debt (e.g., commercial paper) by specified financial institutions. The Proposed registration exemption contains the same conditions as the blanket orders, including that the short-term debt instruments have a designated rating.
Proposed permited client requirement
The CSA, however, have added a new requirement limiting the use of the exemption to trades with permitted clients. Generally, "permitted clients" are wealthy individuals and entities, corporations, financial institutions and government entities; not retail investors.
The CSA stated that it has reviewed current exemptive relief orders and determined that generally, the trading occurs with persons that meet the definition of a permitted client. The CSA also believes that permitted clients generally have sufficient investment knowledge or resources to obtain expert advice, and accordingly may not need or wish to have the same level of protection as other investors.
It should be noted that if the Proposed registration exemption cannot be satisfied, the trade can likely be conducted through a registered dealer. Most financial institutions have affiliations or relationships with registered dealers.
Although the CSA proposes to retain the condition relating to the securities traded under the Proposed registration exemption having prescribed credit ratings, the CSA may amend or remove this condition based on the outcome of work in this area by other CSA committees. The CSA states that is plans to repeal the existing exemptive relief orders when the Proposed registration exemption comes into force.
In Ontario, there are alternate exemptions from the dealer registration requirement that are available for trading in short-term debt instruments, such as the exemptions in section 35.1 of the Securities Act (Ontario) and section 4.1 of Ontario Securities Commission Rule 45-501 Ontario Prospectus and Registration Exemptions.
Comment period
The CSA has posed a number of questions involving the Proposed NI 31-103 Amendments and seeks feedback. The comment period ends on March 5, 2014.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.