As predicted in our May Securities Law Update, the Ontario Securities Commission (the OSC) has adopted an amendment to NI 44-101 – Short Form Prospectus Distributions which expands the existing pre-marketing exemption to include pre-marketing of securities issuable in bought deal offerings under a greenshoe option. Notice of OSC approval of the amending instrument (Amending Instrument) was released on June 29, 2006, formalising the exemptive relief made available on a case-by-case basis under CSA Staff Notice 47-302 – Pre-marketing of underwriters’ options on bought deals.
The OSC and other Canadian securities administrators (together, the "CSA") had issued Staff Notice 47-302 in April 2006 to clarify that the exemption from the prospectus requirements for pre-marketing under Section 7.1(a) of NI 44-101 did not extend to pre-marketing of optioned securities, including securities issued under a post-closing over-allotment (greenshoe) option. This provoked an understandable outcry from the market, as a result of which the OSC was moved to signal that it would grant discretionary relief permitting pre-marketing of securities issuable under an over-allotment option in connection with a bought deal on an expedited case-by-case basis.
Acknowledging the impracticality of continuing this practice over an extended period of time, the Amending Instrument explicitly extends the pre-marketing exemption to over-allotment options in a new Section 7.2 which includes a definition of "over-allotment option". To qualify for the exemption, the over-allotment option must expire within 60 days after closing of the distribution. Moreover, it must be limited to the over-allocation position determined as at the closing of the distribution or 15 % of the number or principal amount of the securities qualified for distribution (without taking into account the optioned securities), whichever is the lesser.
The Amending Instrument, which applies in Ontario only, will automatically come into force on September 20, 2006 unless approved earlier by the Minister (in which case it will come into force 15 days after approval). A similar exemption has been adopted or will be adopted in other jurisdictions through blanket orders or equivalent pronouncements. To date, such orders have been issued in Alberta, British Columbia, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Saskatchewan.
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