Canada: US OTC Market Issuers Could Become Subject To Canadian Reporting Obligations

The Canadian Securities Administrators in each province and territory of Canada other than Ontario (the adopting jurisdictions) recently adopted Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets. As we've previously discussed, MI 51-105 is scheduled to come into force on July 31, 2012 and, assuming ministerial approval, will have significant implications for issuers that have, or will have in the future, a class of securities that are quoted on over-the counter markets in the United States and who do not also have securities that trade on the North American stock exchanges specified in the Instrument.

By operation of the Instrument, an issuer will become subject to Canadian public company reporting obligations where the issuer, among other things, engages in promotional activities in furtherance of the purchase or sale of their securities, either directly or through a third party representative, in or from an adopting jurisdiction on or after July 31, 2012, or where the issuer otherwise previously distributed securities to persons resident in an adopting jurisdiction if the issuer is subsequently assigned a ticker symbol by the Financial Industry Regulatory Authority in the United States (FINRA) for use on OTC markets in the United States at any time after July 31, 2012. 

The stated purpose of the Instrument is to discourage the manufacture and sale in the adopting jurisdictions of OTC quoted shell companies that can be used to facilitate abusive market practices. However, the Instrument will have the unintended but significant effect of subjecting major well-established issuers who have securities listed on exchanges outside of North America and that only trade OTC in the United States to Canadian public company reporting obligations. Significantly, these issuers may unknowingly become subject to Canadian public company reporting obligations, as it is common market practice for U.S. broker-dealers to apply to have a FINRA ticker symbol assigned to an issuer's securities without the knowledge or involvement of the issuer. 

The Instrument defines an "OTC issuer" as an issuer that has a class of securities that have been assigned a ticker symbol by FINRA for use on any of the OTC markets in the United States (such as the OTC Bulletin Board, the Pink Sheets or the "grey market") but does not include an issuer that has any class of securities that are listed or quoted on one or more prescribed Canadian or U.S. exchanges. However, an issuer will also be considered an "OTC issuer" if a FINRA ticker symbol is assigned to the issuer after July 31, 2012 and, on or before the date the symbol was assigned, the issuer distributed a security to a person resident in an adopting jurisdiction and that class of securities becomes the issuer's OTC-quoted securities. As such, where a ticker symbol is assigned to a class of OTC securities trading in the United States, there is a risk that an issuer that has distributed securities to persons resident in an adopting jurisdiction could, regardless of when such securities were distributed, inadvertently become subject to Canadian public company reporting requirements and to the jurisdiction of securities regulators in the adopting jurisdictions.

Pursuant to MI 51-105, an OTC issuer will be considered an "OTC reporting issuer" and become subject to Canadian securities law requirements that apply generally to "reporting issuers" in the adopting jurisdictions if, after July 31, 2012, an OTC issuer's business is "directed or administered," or "promotional activities" are carried on, in or from an adopting jurisdiction.  For these purposes, "promotional activities" means activities or communications by or on behalf of an issuer that promote or could reasonably be expected to promote the purchase or sale of the securities of the issuer. The regulators in the adopting jurisdictions consider "promotional activities" to include communications through an investment newsletter or similar types of promotional publications, as well as the provision of information to potential investors who request information or to potential private placement investors.  Further, an issuer will be considered to carry out promotional activities in an adopting jurisdiction if it communicates from anywhere with persons in that jurisdiction, or communicates from an adopting jurisdiction with persons anywhere, in a way that promotes or reasonably could be expected to promote the purchase or sale of the issuer's securities.

An OTC issuer that becomes an "OTC reporting issuer" will become subject to Canadian securities law requirements, including those requirements relating to continuous and timely disclosure that generally apply to Canadian public companies, as well as governance requirements relating to the mandate and composition of audit committees, CEO/CFO certifications and corporate governance disclosure.  An OTC Reporting Issuer will have to file a prescribed form of notice in respect of any persons that carry out promotional activities on its behalf, and its directors, officers, promoters and control persons will have to deliver "personal information forms" to the applicable regulators.

The Instrument also imposes specific restrictions on the use of prospectus exemptions and the ability to resell securities, and will require securities issued by OTC reporting issuers to carry specific legend notations in certain circumstances.  Most notably, if securities of an OTC reporting issuer are acquired on or after July 31, 2012, but prior to the date that the issuer is assigned a ticker symbol by FINRA, those securities may only be resold in reliance upon prescribed prospectus exemptions, or through an investment dealer registered in a Canadian jurisdiction if a trade is executed through an OTC market in the United States. The Instrument has not been adopted in Ontario and may not directly impact issuers whose capital markets activities are restricted strictly to Ontario and do not otherwise have any connection to an adopting jurisdiction. The Instrument is scheduled to come into force in every other province and territory of Canada on July 31, 2012, subject to the receipt of applicable ministerial approvals.

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

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

In association with
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.