Canada: Certain Canadian And Foreign Issuers Quoted In The U.S. OTC Markets Become Reporting Issuers In Canada Under MI 51-105

The Canadian Securities Administrators (CSA) in each province and territory of Canada – other than Ontario – have adopted Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets (MI 51-105) effective July 31, 2012.

What is an OTC Reporting Issuer under MI 51-105?

Under MI 51-105, an issuer will become an "OTC reporting issuer" fully subject to Canadian public company reporting and other obligations if all of the following conditions apply:

  • the issuer does not have any class of securities listed or quoted on the TSX, TSX Venture Exchange, Canadian National Stock Exchange, Alpha Exchange, NYSE, NYSE Amex or NASDAQ;
  • the issuer has a class of securities (in practice, limited to equity securities or convertible debt) that has been assigned a ticker symbol by the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization governing U.S. broker-dealers, for use on any U.S. over-the-counter (OTC) market, including any class of securities whose trades have been reported in the grey market; and
  • on or after July 31, 2012
    • the issuer's business has been directed or administered in Canada (other than Ontario), or
    • the issuer, or someone acting on its behalf, has carried on "promotional activities" in or from any province or territory of Canada other than Ontario, including any communications from outside Canada with persons in Canada that promotes, or reasonably could be expected to promote, the purchase or sale of any class of securities of the issuer.

It is important to note that an OTC Issuer may also become a reporting issuer based on sales into Canada (other than Ontario) before July 31, 2012 of securities that are of the same class as securities that are assigned a ticker symbol by FINRA for use on an OTC market on or after July 31, 2012.

Usually an issuer decides to become a reporting issuer in Canada by filing a prospectus or listing its securities on a Canadian exchange. However, without involvement of the issuer, a U.S. broker-dealer may request FINRA to assign a ticker symbol to a class of securities in connection with OTC trading in the U.S. with the unintended result of the issuer becoming a reporting issuer in Canada.

The requirements of MI 51-105 apply to issuers of all domiciles and there is no exemption from MI 51-105 for issuers that are not incorporated in Canada.

An example of the potential impact of MI 51-105 is that if the equity of a German issuer is listed in Frankfurt and London, but not in Canada or the U.S., and the equity has been assigned a ticker symbol for U.S. OTC trading, the German issuer would become an OTC reporting issuer if it issues debt securities in a private placement to an Alberta institutional investor after July 31, 2012.

The German issuer would become a reporting issuer in Canada even though it may not be an SEC registrant, although it would likely be able to rely upon National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers and file home-country continuous disclosure documents in Canada in satisfaction of most applicable Canadian requirements.

Consequences of Becoming an OTC Reporting Issuer

An OTC reporting issuer is subject to full Canadian public company continuous disclosure requirements including filing of audited financial statements, MD&A and material change reports. These issuers will generally be able to rely upon the less stringent disclosure standards for "venture issuers", but will be required to prepare an annual information form document, which is not required for venture issuers. Shareholders of an OTC reporting issuer will be subject to Canadian public company insider reporting and beneficial ownership disclosure requirements.

Reporting issuer status resulting from MI 51-105 may not be terminated until a number of conditions are met, including at least one year having passed since the last date that promotional activities were carried on in Canada (except in Ontario), and at least one year having passed since the date of the assignment of the ticker symbol by FINRA.

Implications for Canadian Investors

MI 51-105 generally prohibits for a four-month hold period resale of securities of an OTC issuer that were privately placed to investors in Canada (other than Ontario) on or after July 31, 2012. Usually privately placed securities may be re-sold to accredited investors in Canada during the four-month hold period, but such resales are not permitted under MI 51-105. Resales must be made only through a Canadian registered investment dealer (and not an exempt market dealer or exempt international dealer) over an OTC market in the U.S.

Shareholders in Ontario will not be able to rely on section 2.14 of National Instrument 45-102 Resales of Securities for resales of securities outside Ontario that they acquire on or after July 31, 2012 if the issuer is a reporting issuer in any other province or territory of Canada on the distribution date of the securities.

Implications for Issuers and Underwriters

MI 51-105 may have an adverse impact on private placements into Canada by issuers who are not already listed on a Canadian or U.S. stock exchange, and who do not wish to become reporting issuers in Canada.

Unless the CSA address what may be unintended consequences of MI 51-105 before it becomes effective, issuers not already listed in North America and their underwriters will have to consider the implications of MI 51-105 before making any private placement sales in Canada to investors in any province or territory other than Ontario.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

12 Nov 2018, Other, Toronto, Canada

Stories aren’t falsehoods. Stories are the root of all effective human communications: they motivate, animate and clarify. If you aren’t telling stories, you probably aren’t getting your point across.

Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions