Canada: OSC Adopts Rule For Distributions Outside Canada

Prospectus Exemptions

Where it is determined that a distribution has taken place, OSC Rule 72-503 provides exemptions from the prospectus requirement in Ontario under each of the following four circumstances:

  • The issuer has filed a registration statement in the United States in accordance with the 1933 Act and/or the issuer has filed an offering document qualifying the offering of securities (and if applicable, obtained a receipt or approval for such document) under the securities laws of a "specified foreign jurisdiction".
  • The issuer or selling security holder has materially complied with or is exempt from the securities laws of the applicable foreign jurisdiction and the issuer has filed with and obtained a receipt from the OSC for a final prospectus qualifying a concurrent distribution of the same securities to purchasers in Ontario.
  • The issuer is a reporting issuer and has materially complied with or is exempt from the disclosure requirements applicable to the distribution under the applicable foreign securities laws.
  • The issuer is not a reporting issuer in any jurisdiction of Canada and has materially complied with the disclosure requirements applicable to the distribution under the securities laws of the jurisdiction outside Canada.
  • Distributions by non-reporting issuers are subject to a restricted period on resale. Issuers relying on the last two exemptions noted above are required to electronically file a report of trade with respect to the distribution using a new Form 72-503F Report of Distributions Outside Canada within ten days of the distribution.

Exemptions from the Registration Requirement

OSC Rule 72-503 also provides an exemption from the dealer and underwriter registration requirements in Ontario for certain foreign dealers (including dealers acting as underwriters) with respect to distributions to investors outside Canada that are made under a prospectus filed in Ontario or in reliance on an exemption from the prospectus requirement, including the new exemptions noted above, where the dealer has its head office in the United States, Canada or a "specified foreign jurisdiction" and is not registered as a dealer in Canada but is registered (or exempt therefrom) in the United States or a "specified foreign jurisdiction".

A separate exemption is available for an issuer who distributes securities to a person outside Canada pursuant to a prospectus or a prospectus exemption where the trade is made through or to a person relying on an exemption from dealer registration and/or the trade is made in accordance with the dealer and underwriter registration requirements of the investor's jurisdiction and the issuer is not otherwise registered in Canada as a dealer.

Companion Policy Guidance

Accompanying OSC Rule 72-503 is a Companion Policy which provides guidance on the OSC's interpretation and application of sections 53 [Prospectus required] and 25 [Registration] of the Securities Act (Ontario) as well as OSC Rule 72-503, in the context of a distribution outside Canada. The Companion Policy provides that the OSC does not interpret the Ontario prospectus requirement as applying to a distribution of securities outside Canada that is made in compliance with the securities laws of the foreign jurisdiction in which the purchaser is located. However, issuers and other market participants are expected to take sufficient measures (examples of which are provided) to make it reasonable to conclude that it is unlikely that the securities issued will be redistributed back into Canada by the original purchaser.

With respect to the registration requirement, the Companion Policy reminds market participants that registration (or an exemption therefrom) in Ontario is generally required where registrable services are provided to investors in Ontario or where such activities are otherwise conducted within Ontario, regardless of the location of the investors.


Originally published for comment in June 2016, OSC Rule 72-503 was intended to replace Interpretation Note 1 and to provide a regime for the distribution and resale of securities outside Canada. Subsequently, the OSC published a revised draft of OSC Rule 72-503 in 2017 which included undated interpretive guidance and re-articulated key aspects of Interpretation Note 1 regarding when the prospectus requirement would not apply to a distribution of securities to an investor outside Canada. The final OSC Rule 72-503, published on December 21, 2017, replaces Interpretation Note 1 and is intended to "bring greater certainty to cross-border activities in Ontario". OSC Rule 72-503 came into force on March 31, 2018 following ministerial approval on March 22, 2018.

For further information, please see Ontario Securities Commission Notice of Adoption OSC Rule 72-503 Distributions Outside Canada and Companion Policy 72-503 Distributions Outside Canada (December 21, 2017).

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.

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