The Alberta Securities Commission (ASC) is proposing to replace its rules and policies governing certain securities distributions to purchasers outside Alberta, with the aim to reduce regulatory red tape and facilitate cross-border offerings.
Specifically, the ASC has proposed the repeal ASC Rule 72-501 – Distributions to Purchasers Outside Alberta (Existing Rule), ASC Policy 45-601 – Distributions Outside Alberta (ASC Rule 45-601) and Companion Policy 72-501 – Distributions to Purchasers Outside Alberta. In their place, the ASC has proposed to institute Proposed ASC Rule 72-501 – Distributions to Purchasers Outside Alberta (Proposed Rule), together with Proposed Companion Policy 72-501 – Distributions to Purchasers Outside Alberta (Proposed Companion Policy).
The ASC has historically taken the position that a distribution by an issuer with a fundamental or, in certain cases, significant connection to Alberta (as outlined in ASC Rule 45-601) is a distribution from Alberta and subject to Alberta securities laws. In either instance, the ASC's position is that an issuer is required to comply with the prospectus requirements applicable under the Securities Act (Alberta), unless an exemption is available; and the Existing Rule provides only a narrow set of specific exemptions for certain offerings outside Alberta.
While the ASC maintains its position with respect to the application of Alberta securities laws in extra-territorial distributions, the Proposed Rule aims to reduce regulatory impediments and facilitate offerings by Alberta issuers to investors outside of Alberta through a series of new exemptions from the prospectus requirements and the dealer registration rules. The Proposed Rule generally requires that issuers comply with applicable extra-territorial securities laws and presumes that investors are sufficiently protected under the securities laws of the jurisdiction where the purchaser is located. The exemptions thereby limit the extra-territorial application of Alberta's securities laws in a number of offering contexts, insofar as they relate to the prospectus requirements and dealer registration rules; however, they only provide limited exemptions from the application of the first trade restrictions to extra-territorial trades.
The Proposed Rule follows the recent adoption by the Ontario Securities Commission of a similar set of exemptions under OSC Rule 72-503 – Distributions Outside Canada and the adoption by the British Columbia Securities Commission of BC Instrument 72-503 – Distribution of Securities outside British Columbia, each of which also sought to clarify and modernize the approach to foreign offerings by issuers in their jurisdictions (for more information, see out January 2018 Blakes Bulletin: Clarity for Offshore Distributions by Ontario Issuers: OSC Adopts Rule 72-503 Distributions Outside Canada). However, the exemptions in the Proposed Rule and guidance in the Proposed Companion Policy have unique features compared to the new regimes in the other provinces.
PROPOSED RULE: NEW PROSPECTUS EXEMPTIONS
Under the Proposed Rule, new prospectus exemptions would be available for the following types of securities distributions:
- Foreign Public Offering: A distribution to a person outside Canada if the issuer has filed a registration statement in the United States or a similar public offering document in certain other specified foreign jurisdictions that permits the public offering in accordance with the securities laws of such jurisdictions.
- Concurrent Canadian Prospectus: A distribution to a person outside Canada if the issuer complies with the applicable disclosure requirements of the securities laws of the jurisdiction in which the investor is located, or the distribution is exempt in that jurisdiction, and the issuer concurrently files a prospectus with the ASC.
- Canadian Reporting Issuer: A distribution by a Canadian reporting issuer to a person outside of Canada if the issuer complies with the applicable disclosure requirements of the securities laws of the jurisdiction in which the investor is located, or the distribution is exempt in that jurisdiction.
- Canadian Non-reporting Issuer: A distribution by an issuer that is not a Canadian reporting issuer to a person outside Canada if the issuer complies with the applicable disclosure requirements of the securities laws of the jurisdiction in which the investor is located, or the distribution is exempt in that jurisdiction.
Resales of securities issued under the foreign public offering, concurrent Canadian prospectus and Canadian reporting issuer exemptions would not be subject to restrictions under the Proposed Rule.
Resales of securities issued under the Canadian non-reporting issuer exemption or other prospectus exemptions by non-reporting issuers would be subject to a "hold period" restriction as is applicable to other Canadian private placements. However, the Proposed Rule provides exemptions for resales of securities issued by non-reporting issuers where the issuer or trade has a limited connection to Canada, namely:
- Where residents of Canada did not own more than 10 per cent of the outstanding securities of the class or series, and did not represent in number more than 10 per cent of the total number of owners of securities of the class or series
- Where the resale is made through an exchange or a market outside of Canada or to a person or company outside Canada and the issuer qualifies as a "foreign issuer", being an issuer that is not incorporated or organized under the laws of Canada, does not have a head office in Canada and the majority of the executive officers or directors of the issuer ordinarily reside outside of Canada.
A new exemption has also been included to facilitate distributions outside Alberta to purchasers in other Canadian jurisdictions under the existing offering memorandum exemption, in compliance with the requirements of the exemption as it exists in the other Canadian jurisdiction where the purchaser resides. There is also an exemption for marketing activities related to foreign prospectus offerings if no solicitation or advertisement is made to a prospective purchaser resident in Canada, except pursuant to an exemption from the prospectus requirement, and the issuer has complied with the applicable foreign requirements.
The existing exemption in Rule 72-501 for offerings on the Eurobond market would be maintained under the Proposed Rule. Resales of such securities would be subject to the prospectus requirement unless at least 40 days had elapsed from the date of issue.
The Proposed Rule also provides for an exemption from the dealer registration requirement for a dealer acting in connection with a distribution outside Canada that, among other requirements, has its head office or principal place of business in the U.S., Canada or a specified foreign jurisdiction and is registered or otherwise permitted under applicable foreign law to act as a dealer on the distribution.
The Proposed Rule requires that issuers relying on any of the Canadian reporting issuer exemption, the Canadian non-reporting issuer exemption and the Eurobond exemption, each noted above, file a pared-down version of the report of exempt distribution (Form 45-106F1 – Report of Exempt Distribution, which omits disclosure of, among other things, confidential information regarding purchasers, directors, executive officers, promoters and control persons. Issuers relying on the offering memorandum exemption are required to file a complete report of exempt distribution.
REQUEST FOR COMMENTS
The ASC has requested comment on the Proposed Rule and the Proposed Companion Policy on, or before, June 18, 2018.
The Proposed Rule provides an improved level of clarity and functionality to Alberta's outbound distribution regime. Given the importance of access to foreign capital markets for Alberta's capital-intensive industries, these amendments should be carefully reviewed and assessed by capital markets participants within the comment period.
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