The Canadian securities regulators have finalized rule changes
that would enable foreign issuers (including governments) to make
private placement offerings to permitted clients in Canada as part
of a global offering without a Canadian wrapper, subject to certain
conditions. The rules will come into effect on September 8,
The exemptions address underwriter conflicts disclosure, the
description of statutory rights of action, and requirements to
obtain regulatory permission to make a statement in the offering
document about a proposed listing of the offered securities.
Sophisticated Canadian investors can lose investment
opportunities when foreign issuers and underwriters decide not to
extend United States or global offerings into Canada as a result of
the time and expense associated with preparing a Canadian wrapper
to satisfy some technical Canadian disclosure requirements or, in
some cases, seeking regulatory permission to expressly make any
representation concerning the offered securities' proposed
AVAILABLE EXEMPTIVE RELIEF
Relief is available for two types of offerings made primarily
Securities issued by a foreign issuer that is not a reporting
issuer in Canada, has its head office outside of Canada, and has a
majority of its executive officers and directors resident outside
Securities issued or guaranteed by a foreign jurisdiction's
government, which can be a national government or the government of
a political subdivision
HOW DO THE EXEMPTIONS DIFFER FROM THE EXISTING DEALER
The rules deal with dealers and institutional investors'
significant concerns about the discretionary exemption orders and
with the exemptions as proposed for comment in April and November
2013. There are no longer requirements relating to compliance with
U.S. requirements on underwriter conflicts disclosure for offerings
registered with the U.S. Securities and Exchange Commission in the
case of offerings not so registered. While the exemptions have a
new notice requirement, the notice is greatly simplified and is not
required to be sent in advance of an offering, and there is no
requirement to obtain a signed acknowledgement.
For non-government issuers, the conditions include:
A concurrent distribution of the security to investors in the
Receipt by Canadian investors of a document containing the same
disclosure as provided to U.S. investors
Compliance with applicable U.S. federal securities law and, if
applicable, the disclosure requirements of FINRA Rule 5121
In the case of securities issued or guaranteed by a foreign
government, there are no conditions relating to U.S. offerings or
specifically relating to the disclosure of underwriter
TO WHOM CAN THE SECURITIES BE SOLD?
A purchaser of securities subject to the exemption must be a
"permitted client" as defined in National Instrument
31-103 - Registration Requirements, Exemptions and Ongoing
Dealers would be required to provide a notice concerning their
reliance on the exemptions, which could be done in three ways:
A dealer provides the notice to its clients in advance of any
offering that relies on the exemptions
The offering document includes a notice to Canadian
A dealer provides the notice to its clients separately from the
The notice must refer to reliance on the exemption from the
underwriter conflicts disclosure requirements and include a
prescribed paragraph regarding statutory rights of action. If given
as a one-time notice before any offering under the exemption, the
notice must state that the dealer intends to rely on the exemption
for any distribution in the future of an eligible foreign security
to the permitted client.
It remains to be seen whether a practice of including a
"Notice to Canadian Investors" in global offering
documents, as commonly is the practice for other jurisdictions,
will develop. In addition to including the prescribed
information, the Notice to Canadian Investors could include an
optional paragraph on Canadian selling and resale restrictions.
IMPACT ON POST-TRADE AND MONTHLY REPORTING
The exemptions do not affect the requirement to file post-trade
reports with the Canadian regulators. The regulators have indicated
that they intend to publish revisions to the form of post-trade
report for comment this summer.
The requirement that dealers provide a monthly summary of
offerings relying on the exemptive relief would no longer
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guide to the subject matter. Specialist advice should be sought
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