Canada: Canadian Securities Regulators Adopt Changes To The Private Placement Regime And Certain Other Specific Changes Adopted By Ontario

On February 19, 2015, the Canadian Securities Administrators ("CSA") announced the adoption of certain amendments to National Instrument 45 106 - Prospectus and Registration Exemptions ("NI 45 106") that affect the following private placement or prospectus exemptions:

  1. the accredited investor exemption,
  2. the minimum amount or $150,000 prospectus exemption,
  3. the short term debt prospectus exemption, and
  4. the family, friends and business associates prospectus exemption.

In addition, the Ontario Securities Commission (the "OSC") is introducing a "family, friends and business associates"prospectus exemption, which brings Ontario in line with other Canadian jurisdictions.

The amendments are expected to come into force on May 5, 2015. Each of these is discussed in more detail below.

A. Accredited Investor Prospectus Exemption

The amendments to the accredited investor prospectus exemption (the "Accredited Investor Exemption")

  1. introduce a new risk acknowledgement form for many individual accredited investors (individuals with net financial assets of more than $5,000,000 do not need to sign the form) that describes, in plain language, the categories of individual accredited investors and identifies the key risks associated with purchasing securities in the exempt market,
  2. provide expanded guidance on the steps a seller should take to verify the status of purchasers acquiring securities under prospectus exemptions, including the Accredited Investor Exemption,
  3. allow fully managed accounts to purchase investment fund securities using the managed account category of the Accredited Investor Exemption in Ontario, as currently permitted in all other Canadian jurisdictions, and
  4. make certain family trusts accredited investors.

The amendments to the Accredited Investor Exemption do not make changes to the net income, net financial asset or net asset thresholds for an individual to qualify as an accredited investor. Nor has any form of annual indexing been introduced. The amendments aim to enhance investor protection instead through greater use of "health warnings"and greater emphasis on ensuring investors are in fact qualified to purchase. The enhanced guidance on steps that a seller must take to ensure an investor is qualified, while arguably being simply more explicit about current compliance responsibilities and liability in a private placement, does make some statements to suggest that the current market practice may no longer be adequate. The guidance refers to the seller obtaining information from the purchaser in order to determine whether an investor has the requisite income, assets or relationship to meet the terms of the exemption, reliance on standard representations in a subscription agreement being potentially insufficient without additional steps, and being able to explain to the regulators why steps were or were not taken to verify status. Combined with a statement that the regulators expect that issuers will have policies and procedures with respect to reliance on prospectus exemptions, future private placements to individuals could be more intrusive and burdensome than is currently the case.

B. $150,000 Minimum Amount Prospectus Exemption

Currently, no prospectus is required for a distribution of securities provided that the purchaser invests a minimum of $150,000 (the "Minimum Amount Exemption"). However, the CSA has determined that this threshold may not be a proxy for sophistication or the ability to withstand financial loss for individual investors, and may encourage individual investors to over concentrate in a single investment, especially in some cases where leverage is involved. As a result, the amendments will no longer permit an individual investor to utilize the Minimum Amount Exemption.

The Minimum Amount Exemption will, however, remain available for trades made by non individual investors.

C. Short Term Debt Prospectus Exemption

The amendments to the short term debt prospectus exemption (the "Short Term Debt Exemption") are intended to address investor protection and systemic risk concerns. The amendments will modify the credit ratings required to distribute short term debt, primarily corporate commercial paper, under the Short Term Debt Exemption, so as to (i) remove a regulatory disincentive for some commercial paper issuers to obtain an additional credit rating (ii) provide consistent treatment of commercial paper issuers with similar credit risk and (iii) maintain the current credit quality of commercial paper distributed under the Short Term Debt Exemption.

In addition, the amendments make the Short Term Debt Exemption unavailable for short term securitized products, which are primarily asset backed commercial paper, and create a new prospectus exemption for the distribution of short term securitized products (the "Short Term Securitized Products Exemption"). The creation of the Short Term Securitized Product Exemption is intended to support improved practices in the asset backed commercial paper market and ensure its continued stability through the implementation of conditions relating to credit ratings, liquidity, underlying asset pools and initial and ongoing disclosure.

D. Family, Friends and Business Associates Prospectus Exemption

On February 19, 2015, the OSC announced the introduction of a family, friends and business associates prospectus exemption (the "FFBA Exemption"), the purpose of which is to provide a cost effective way for issuers to raise capital from investors who are principals of the business or within the personal networks of the principals of the business.

The FFBA Exemption is premised on investors having a sufficiently close relationship with a principal of the issuer to be in a position to assess the capabilities and trustworthiness of the principals and to access information about their investment. The FFBA Exemption also proposes a requirement for investors to sign a risk acknowledgement form highlighting the key risks associated with the investment and confirming how the investor qualifies to make the investment.

The FFBA Exemption seeks to harmonize in many respects an exemption that is currently available in other Canadian jurisdictions, in an effort to provide early stage issuers with greater access to capital at a critical stage of their development on one hand, while on the other hand providing investors with greater access to opportunities to invest in issuers at the ground level.

A complete copy of the CSA's news release is available here, and a complete copy of the OSC's news release is available here.

Update on Proposed Prospectus Exemptions and Proposed Amendments

Additional proposed prospectus exemptions and amendments are detailed below.

A. Existing Security Holder Prospectus Exemption

On February 11, 2015, a new prospectus exemption became effective in Ontario that allows public companies listed on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange, or the Aequitas NEO Exchange to raise capital from existing investors in reliance on the issuer's public disclosure record. The exemption is substantially harmonized with a similar exemption currently permitted in other Canadian jurisdictions, and incorporates important investor protection measures including, among other things, that providing advice regarding the suitability of the investment has not been obtained, an investor will be limited in the amount they are eligible to invest to $15,000 in the previous 12 month period under the exemption.

A copy of the OSC's Notice of Amendments published on November 27, 2014 is available here.

B. Proposed Offering Memorandum, Crowdfunding, and Rights Offering Prospectus Exemptions

On March 20, 2014, the OSC published for comment proposed amendments that would introduce an offering memorandum prospectus exemption (the "Offering Memorandum Exemption") and a crowdfunding prospectus exemption along with regulatory requirements applicable to an online crowdfunding portal described in proposed Multilateral Instrument 45 108 - Crowdfunding (collectively, the "Crowdfunding Regime").

The comment period for the proposed Offering Memorandum Exemption and Crowdfunding Regime ended on June 18, 2014. The OSC is in the process of reviewing the comments and is aiming to publish the Offering Memorandum Exemption and the Crowdfunding Regime either in final form or, if warranted, for a second comment period, in summer 2015.

On November 27, 2014, the CSA published for comment proposed amendments that would streamline the existing rights offering prospectus exemption for non investment fund reporting issuers, while also addressing compliance and investor protection concerns. The comment period for the proposed amendments to the rights offering prospectus exemption ends on February 25, 2015.

C. Proposed Changes to Report of Trades

On March 20, 2014, the OSC published two proposed new reports of exempt distribution for use in Ontario and certain other jurisdictions:

  • Form 45 106F10 Report of Exempt Distribution for Investment Fund Issuers (Alberta, New Brunswick, Ontario and Saskatchewan), and
  • Form 45 106F11 Report of Exempt Distribution for Issuers Other Than Investment Funds (Alberta, New Brunswick, Ontario and Saskatchewan).

The comment period ended on June 18, 2014, and in response to comments received regarding the need to harmonize the reports of exempt distribution across the CSA, the OSC is currently working with CSA members to harmonize reporting obligations to the extent possible. A second comment period regarding the proposed reports of exempt distribution is anticipated in spring 2015. The OSC continues to require a Form 45 106F1 Report of Exempt Distribution be filed for distributions in CSA jurisdictions other than British Columbia, while issuers are generally required to file a Form 45 106F6 British Columbia Report of Exempt Distribution in British Columbia.

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
 
In association with
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
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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