Under Multilateral Instrument 51-105 – Issuers Quoted in the U.S. Over-the-Counter Markets, a foreign issuer which undertakes promotional activities in Canada without being listed or quoted on a designated exchange runs the risk of being deemed a reporting issuer in Canada, and therefore subject to extensive Canadian continuous disclosure requirements, if the issuer's equity securities trade over the counter (OTC) in the United States. As a result, some dealers undertaking private placement offerings of foreign securities in Canada have been limiting Canadian selling efforts to Ontario (which did not adopt MI 51-105) and Quebec (which issued a blanket order in 2012 exempting issuers from the rule so long as promotional activities concern only "permitted clients").
A recent Alberta Blanket Order follows the Quebec model to exempt issuers from becoming OTC reporting issuers under MI 51-105 so long as selling efforts and actual sales are only made to "permitted clients" on a private placement basis. As a result of the Alberta ruling, issuers and dealers involved in this type of offering can now add Alberta to the list of Canadian provinces where promotional activities and sales may be effected without concern for the unintended effects of MI 51-105.
The Alberta Blanket Order also eliminates certain other Canada-specific disclosures (known as "connected issuer" and "related issuer" disclosures) that would otherwise need to be included in a "wrapper" document to supplement the foreign offering document, and does away with a related valuation requirement, as well as prohibitions on exchange listing representations. These exemptions are only available for private placement offerings to "permitted clients".
As we discussed in a previous post, Canada-wide rule changes are being considered by Canadian securities regulators, the cumulative effect of which would be to eliminate altogether the need to prepare a Canadian wrapper document for certain types of foreign offerings to sophisticated Canadian investors.
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