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.

Similar Articles
Relevancy Powered by MondaqAI
Thompson Dorfman Sweatman LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Thompson Dorfman Sweatman LLP
Related Articles
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
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 (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

To Use 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.


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.


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