Canada: Securities Regulatory Authorities Propose New "Existing Security Holder" Prospectus Exemption

In an effort to reduce the cost of capital and provide greater access to a larger pool of investors, the securities regulatory authorities (“SRA”) in all Canadian provinces, except Ontario and Newfoundland and Labrador (“Participating Jurisdictions”) have released for public comment, Multilateral CSA Notice 45-312 – Proposed Prospectus Exemption for Distributions to Existing Security Holders.

This proposed prospectus exemption is open for public comment until January 20, 2014, and would allow TSX Venture Exchange (“TSX-V”) listed issuers to distribute securities to existing security holders (the “Existing Security Holder Exemption”).

Absent from the above group of SRA is the Ontario Securities Commission (“OSC”). However, the OSC recently announced its support for the proposed Existing Security Holder Exemption and will seek substantial harmonization in developing its own exemption.

The Proposed Existing Security Holder Exemption

Under the proposed Existing Security Holder Exemption, TSX-V listed issuers that are current on all their timely and periodic disclosure documents (“Qualified Issuers”) would be able to distribute securities to existing security holders without the use of an offering document, provided that:

  • the offering consists only of the class of equity securities listed on the TSX-V or units consisting of the listed security and a warrant to acquire the listed security;
  • the issuer issues an “offering news release” disclosing the proposed offering, including details of the use of proceeds;
  • each investor confirms in writing to the issuer that as at the “record date” (the timing of which remains undetermined as the SRA are requesting comments specific to an appropriate record date) the investor held the type of listed security that the investor is acquiring under the proposed Existing Security Holder Exemption; and
  • the aggregate amount invested by an investor in the prior 12 months in reliance on the proposed Existing Security Holder Exemption is not more than $15,000, unless the investor has obtained advice regarding the suitability of the investment from a registered investment dealer.

As with most other capital raising prospectus exemptions, the proposed Existing Security Holder Exemption contemplates that the first trade of securities offered pursuant to the exemption would be subject to a four month hold period (although the SRA have solicited comments on this point).

In order to ensure sufficient investor protections for misrepresentation, the SRA propose the following additional measures:

  • requiring Qualified Issuers to represent in the subscription agreement that there are no material undisclosed facts or changes relating to the Qualified Issuer;
  • statutory secondary market civil liability provisions for investors in Alberta, Québec and New Brunswick1; and
  • a contractual right of action for rescission or damages for investors in the remaining Participating Jurisdictions.2

Proposed Exemption Provides Access to More Investors

The proposed Existing Security Holder Exemption streamlines the currently available, yet rarely used, rights offering prospectus exemption. The proposed exemption is a welcome attempt by the SRA to provide much needed relief to Canadian listed TSX-V issuers that are struggling to raise capital due to the currently challenging Canadian capital marketplace.

Distributions to retail investors by prospectus, offering memorandum or other offering document are risky and costly to issuers as the fees and expenses associated with such distributions are significant and are borne by the issuer whether or not the offering is successful. As a result, TSX-V listed issuers consciously avoid “offering document” offerings, eliminating a significant source of potentially available capital, and rely almost entirely on private placements (which are only available to limited classes of placees) as their only practical and viable capital-raising vehicle. The proposed Existing Security Holder Exemption significantly reduces the risks and cost of capital associated with “offering document” offerings by replacing the traditional disclosure document with a condensed offering news release.

The proposed Existing Security Holder Exemption also seemingly addresses, in part, an anomaly within the Canadian securities regulatory framework that has sidelined non-accredited retail investors from accessing the ‘sweetened’ private placement offerings of Canadian listed issuers. As an example, a non-accredited retail investor is able to purchase securities of a Canadian listed issuer in the secondary market in the morning, yet is restricted from subscribing in a private placement of the same issuer later that afternoon. By allowing Qualified Issuers to distribute securities to their existing security holders, existing non-accredited security holders are given access to these otherwise restricted, and usually discounted, offerings.

While increasing access to capital for TSX-V listed issuers is the primary purpose of the proposed Existing Security Holder Exemption, this objective must be tempered by appropriate investor safeguards to maintain the integrity of the Canadian capital marketplace, and the SRA have struck a fair balance. Investors relying on the proposed exemption will: (i) have access to all timely and periodic disclosure documentation of the Qualified Issuer, including the proposed offering press release; (ii) be subject to either a $15,000 annual investment cap, or no cap provided investors are advised by investment dealers; and, (iii) will be afforded statutory secondary market civil liability protections, or contractual rights of action for rescission or damages in the event of a misrepresentation in the issuer’s continuous disclosure record.

Proposed Exemption is a Step in the Right Direction

The proposed Existing Security Holder Exemption represents a step in the right direction on behalf of the SRA. However, as is often the case with any new proposal, room exists to improve upon and clarify aspects of the proposed exemption.

For instance, it is contemplated that the proposed Existing Security Holder Exemption would only apply to TSX-V listed issuers. Many issuers listed on the Toronto Stock Exchange (“TSX”) are currently grappling with capital-raising challenges similar to those faced by their TSX-V counterparts. The logic behind restricting the availability of the proposed exemption to TSX-V listed issuers is not immediately clear. TSX listed issuers would no doubt welcome the opportunity to access additional capital from their existing non-accredited security holders.

The proposed Existing Security Holder Exemption does not have a fixed record date for security holders of the Qualified Issuer as the SRA are seeking specific comment on appropriate record dates. However, the SRA appear prepared to accept a minimum of at least one day prior to the announcement of an offering given that “…the investor will have already considered whatever information or advice they needed to make an investment decision”. The authors agree that the record date should be no longer than one day prior to the announcement of the offering under the proposed exemption.

Proposed Exemption Still Open for Public Comment

The proposed Existing Security Holder Exemption contains provisions that demonstrate the SRA have reviewed, in earnest, the challenges facing Canadian TSX-V issuers. While we support initiatives that seek to reduce the cost of capital and provide greater access to a larger pool of investors, this exemption will be limited by definition to a small group of investors, namely existing security holders.

In a prior bulletin, the authors discussed a similar dealer/adviser exemption (“Dealer Exemption”) that would see issuers raise funds from the public, provided that it is done through a registered investment dealer/adviser and provided that investor protection measures, including defined annual and or individual investment caps, are in place. Should the SRA introduce a new exemption, or an amended Existing Security Holder Exemption, the authors propose that an exemption without a requirement to be a shareholder may result in the kind of impact that the Canadian capital markets need.

The public has an opportunity to comment on the proposed Existing Security Holder Exemption until January 20, 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.

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.