Canada: Private Placements, Canadian Wrappers And Exempt Market Dealer Restrictions

Last Updated: July 13 2015
Article by Ronald Kosonic and Michael Burns

Most Read Contributor in Canada, September 2016

How Recent CSA Rule Changes will Affect Issuers, Selling Dealers and Institutional Purchasers

One door soon opens as another is about to close.

The recent rule amendments announced by the Canadian Securities Administrators (CSA), the long-awaited Wrapper Relief Amendments, will provide relief from the delivery of certain supplementary information to Canadian institutional investors by non-Canadian issuers. Such information has typically been delivered in the form of a "wrapper" that is attached to the front of the issuer's offering documents.

But rumours of the death of the Canadian wrapper may have been greatly exaggerated.

And questions remain whether these rule amendments will accomplish their intended goal of easing unnecessary regulatory burden on non-Canadian issuers and their distributors who only sell to Canadian institutions and other sophisticated investors. In some cases they will.

However, at the same time that the Wrapper Relief Amendments were being finalized, certain US dealers were advising their Canadian institutional investor clients that, as of July 11, 2015, they will no longer be able to participate in specific types of offerings (whether by Canadian or non-Canadian issuers) because of restrictions being placed on registered exempt market dealers in Canada. Non-Canadian issuers and dealers selling into Canada must also consider other regulatory requirements associated with conducting private placements in Canada that are not covered by the Wrapper Relief Amendments.

How these seemingly unrelated, yet very inter-related, rule amendments will apply to a specific fact situation, will depend on the nature of the issuer, the type of security being sold, how the security is sold, where the purchaser resides, and the dealer involved.

The Wrapper Relief Amendments

On June 25, 2015 the CSA published a series of rule amendments that, in effect, codified and expanded previous discretionary relief orders from the requirement to provide certain disclosure to Canadian permitted clients. ("Permitted clients" generally include institutions and ultra-high net worth investors.) Amendments to National Instrument 33-105 Underwriting Conflicts provide an exemption from the disclosure requirements relating to conflicts of interest between an issuer and the principal dealer. Amendments to OSC Rule 45-501 Ontario Prospectus and Registration Exemptions, together with Multilateral Instrument 45-107 Listing Representations and Statutory Rights of Action Disclosure Exemptions, provide relief from the requirements, in those jurisdictions where they exist, to disclose statutory rights of action for a misrepresentation in an offering document and to obtain approval of the local securities regulatory authority before making a representation regarding the listing of securities on a stock exchange. These so-called Wrapper Relief Amendments will come into force on September 8, 2015 and are a welcome relief as far as they go.

To rely on the Wrapper Relief Amendments, a number of conditions must be met, including:

  • The offering must be made primarily in a non-Canadian jurisdiction of securities of a foreign issuer that is not a reporting issuer in Canada and whose head office and majority of executive officers and directors are outside Canada, or securities that are issued or guaranteed by a foreign government.
  • Sales must be made in Canada only to permitted clients.
  • A written notice must be delivered to the permitted client specifying the exemption relied on. A dealer may give a one-time notice to an investor that covers all future distributions that the permitted client participates in with that dealer.

To rely on the NI 33-105 conflict of interest disclosure exemptions, the following conditions must also be met:

  • Canadian purchasers must be given any offering documents prepared by the issuer in connection with the distribution.
  • The offering must be made concurrently in the US, and Canadian investors must receive the same disclosure as US investors.
  • The offering documents must contain, if applicable, disclosure of conflicts of interest that is in compliance with rule 5121 of the US Financial Industry Regulatory Authority (FINRA) and is otherwise in compliance with US securities law.

By removing these burdensome disclosure requirements for non-Canadian issuers, the CSA explain that they hope "to facilitate participation in foreign securities offerings by sophisticated Canadian investors that qualify as permitted clients". However, the conflict of interest disclosure exemption is limited to offerings made concurrently in the US, and registered dealers participating in a trade may be required to ensure that conflicts of interest are disclosed whether or not the NI 33-105 conflict of interest disclosure exemptions are available.

Other Disclosure Requirements and Regulatory Hurdles

The Wrapper Relief Amendments provide welcome exemptions from certain disclosure that is typically included in Canadian wrappers. However, there are other securities law implications (such as those discussed below) for certain types of non-Canadian issuers who wish to offer their securities in Canada, even to sophisticated purchasers, which are not addressed in the Wrapper Relief Amendments. Supplementary documentation may still have to be provided by non-Canadian issuers. Although this disclosure may be included in another document such as a cover letter, a supplement to the subscription agreement or a side letter.

The Deemed Reporting Issuer Rule

In July 2012, all jurisdictions in Canada, other than Ontario, adopted Multilateral Instrument 51-105 Issuers Quoted in the US Over-the-Counter Markets (MI 51-105) which deems certain issuers to be reporting issuers in Canada (for reporting purposes), even if their securities were sold in Canada only pursuant to private placements and are traded over-the-counter, if those securities are assigned a ticker symbol in the US. The potential regulatory burden has given US issuers a reason to pause before offering their securities to Canadian institutional investors, and has been a significant concern to Canadian institutional investors. It should be noted that MI 51-105 does not apply at all in Ontario, and blanket orders have been issued in Alberta, British Columbia and Québec providing some relief from MI 51-105 in connection with sales to permitted clients in those provinces.

Investment Funds and Registration Requirements

Non-Canadian investment funds offering securities into Canada must consider the applicable registration requirements for their investment fund managers1. Non-resident investment fund managers wishing to rely on the applicable registration exemption in Ontario, Québec and Newfoundland & Labrador are required to provide mandated disclosure to investors resident in those provinces. Such information today often forms part of the Canadian wrapper, but after September 8, 2015 this information will still need to be provided in some form if a wrapper is not used.

Non-Canadian managers of alternative funds branded as hedge funds, private equity funds or venture capital funds must consider whether their funds are caught by the definition of "investment fund" for this purpose.

Industry-Specific Issuers

Specialized rules exist in Canada for banks and mining companies, for example, offering securities in Canada by way of private placement.

Limited Partnerships

Non-Canadian issuers structured as limited partnerships that sell their securities in certain provinces of Canada must register as an extra-provincial limited partnership in those provinces.

Post-Trade Filing and Reporting

The Wrapper Relief Amendments do not relieve issuers from the requirements to file

  • copies of the offering documents delivered to Canadian investors in those provinces where required, and
  • exempt trade reports (and to pay associated filing fees),

generally within 10 days of the trade, although an investment fund has the option to file an annual exempt trade report (and pay the fees) within 30 days of its financial year-end.

Proposed Amendments to Reporting Requirements

On June 30, 2015, members of the CSA (other than the Ontario and British Columbia Securities Commissions) issued a multilateral notice requesting comments on proposed amendments that will require Canadian and non-Canadian issuers relying on the offering memorandum exemption in those jurisdictions, issuers relying on the crowdfunding exemption in some of those provinces, all issuers that deliver a disclosure document to residents of Québec, and all issuers in those jurisdictions filing an exempt trade report, to do so through the System for Electronic Document Analysis and Retrieval (SEDAR). SEDAR is the publicly available electronic portal used by reporting issuers in Canada to file their public documents. Although the proposed rule amendments will permit some of the above filings to be made privately (so that only the regulators have access), if the filer is unfamiliar with SEDAR or otherwise erroneously files under the wrong category, non-public information could inadvertently be made public. These requirements will also increase costs to issuers distributing into Canada, which include the very real human costs of understanding the complexities of the SEDAR system that was not originally built to accommodate filings in respect of private placements. Comments are due on these proposals by August 31, 2015.

Dealers Involved in Private Placements in Canada

Although private placement rules in Canada provide exemptions from the prospectus requirement, most of those exemptions do not provide relief from the requirement to conduct the trade through a dealer that is registered, or that has the benefit of a registration exemption, in Canada. Not all dealers are created equal, and restrictions on the ability of certain types of dealers can impact an issuer's ability to sell its securities to a Canadian investor, however sophisticated that investor may be.

Effect of Restrictions on Exempt Market Dealers Conducting Brokerage Activities in Canada

First drafted as a proposed amendment in December 2013, and then published in final form in October 2014, new restrictions on exempt market dealer activities (the EMD Restrictions) were the subject of much debate and continue to be the source of considerable confusion. In adopting the EMD Restrictions, which come into effect on July 11, 2015, the CSA intended to limit trading of freely tradeable securities to firms registered as full investment dealers, to ensure that those securities are traded under the regulatory oversight of the Investment Industry Regulatory Organization of Canada (IIROC) and subject to IIROC's market integrity rules. But the real lasting effect may be to deny Canadian institutional investors access to certain types of offerings.

The exempt market dealer (EMD) category of registration permits such a dealer to participate in trades of securities pursuant to an exemption from the prospectus requirement, such as trades to accredited investors. Prior to the EMD Restrictions coming into force, EMDs have sold securities to Canadian institutions and other accredited investors, whether or not a prospectus exemption was required for the sale, on the basis that a prospectus exemption would have been available if required. This has worked well for Canadian institutions seeking access to offerings of public securities sold exclusively through US and U.K. dealers operating as EMDs in Canada.

The EMD Restrictions now prohibit an EMD from participating in the trade of a security that is freely tradeable on a marketplace (Canadian or foreign). These restrictions effectively prevent EMDs from participating in a prospectus offering of listed securities and from trading in listed securities in the secondary market unless there is a restriction on trading that would only permit a further trade of the security in reliance on a prospectus exemption.

If one of the goals of the EMD Restrictions was to stop international dealer firms from operating in Canada under the "registration-lite" EMD category, rather than as full investment dealers (members of IIROC), the effect was not fully appreciated. The CSA's thinking was that international firms would simply use their Canadian affiliates that are members of IIROC (many international firms have such affiliates) to conduct this type of trading.

Things are not that simple. Not all international firms have an affiliated IIROC member. A Canadian issuer offering corporate debt securities in US dollars might, for a number of reasons, only use a US dealer (rather than a Canadian dealer) to underwrite the offering. Certain of those offerings will no longer be available to Canadian investors if a Canadian investment dealer does not participate. Early indications from a number of international dealers are that neither their Canadian affiliates nor any other Canadian dealers will have access to many such offerings, even after July 11, 2015.

What has exacerbated this brewing crisis (and for many Canadian institutional investors this does represent a potential crisis) is confusion over the full impact of the EMD Restrictions.

In the companion policy to NI 31-103, the CSA have indicated that EMDs will continue to be able to participate in:

  • A distribution of securities, including securities of investment funds or reporting issuers, made under an exemption from the prospectus requirement (i.e. a private placement).
  • A resale of securities that are subject to resale restrictions.
  • A resale of securities that are freely tradeable if the securities are not traded on a marketplace (e.g. they only trade over-the-counter).

For example, EMDs will continue to be able to participate in a private placement of Canadian or foreign securities to accredited investors in Canada, where no prospectus has been filed in Canada in connection with of that offering, whether or not the issuer is a reporting issuer in Canada and the class of securities offered is listed on an exchange. EMDs may even trade those privately placed securities in the secondary market until such time as the applicable restricted period or seasoning period expires. It is only after the securities become freely tradeable that an EMD may no longer participate in trades of such listed securities. These clarifications are not intuitively obvious when reading the words of the EMD Restrictions.

In light of the continued lack of clarity and potential confusion, we strongly recommend that Canadian counsel be consulted to determine whether a firm registered as an EMD in Canada may participate in a specific treasury offering to Canadian investors and if or when they may support trading of those securities in the secondary market.

The International Dealer Exemption as an Alternative

International firms may, rather than register as an EMD in Canada, choose to rely on the international dealer exemption that allows them, and will continue to allow them even after the EMD Restrictions come into force, to (among other things): trade in a Canadian or foreign debt security with permitted clients during the security's primary distribution if the debt security is offered primarily outside of Canada and a prospectus has not been filed in Canada in respect of the distribution; trade in a foreign debt security with permitted clients in the secondary market; and trade in any foreign security with permitted clients except during the security's primary distribution if a prospectus has been filed in Canada in respect of the distribution.

In some cases this will permit trading in securities that EMDs are prohibited from trading under the EMD Restrictions (for example, an international dealer may trade in a non-Canadian security in the secondary market even if the security has been qualified by prospectus and is freely tradeable on a marketplace). It is important to note, however, that international firms relying on the international dealer exemption in Canada have, and will continue to have, disclosure requirements to Canadian clients, as well as other conditions applicable to their business if they wish to continue to rely on this exemption.

Untangling Canadian Regulations

The rule amendments, including the proposed rule amendments, we refer to in this Bulletin must be carefully considered for any private placement that takes place after the rule amendments or proposed amendments come into force. It is evident that the CSA still have some work to do if they wish to facilitate the participation in foreign securities offerings by sophisticated Canadian investors — not the least of which is the further harmonization of securities laws in Canada. The rule changes discussed in this Bulletin have come fresh on the heels of dramatic changes to Canada's prospectus exemptions, which became effective on May 5, 2015. We discuss those changes in our Bulletin Significant Changes to Canada's Exempt Market Effective May 5, 2015: Implications for Issuers and Dealers as well as for Retail Investors.


1. Please see Two Distinct Regulatory Approaches for Non-Resident Investment Fund Managers Finalized in Canada – Effective September 28, 2012 Investment Management Bulletin July 2012 Borden Ladner Gervais LLP

About BLG

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.