Canadian Securities Administrators

Canadian Securities Administrators

April 16, 2015 12:00 ET

Securities Regulators in British Columbia, New Brunswick and Saskatchewan Propose New Investment Dealer Prospectus Exemption

VANCOUVER, BRITISH COLUMBIA--(Marketwired - April 16, 2015) - The securities regulatory authorities in British Columbia, New Brunswick and Saskatchewan today published for comment a proposed prospectus exemption (proposed exemption) that would, subject to certain conditions, allow issuers listed on a Canadian exchange to raise money by distributing securities to investors who have obtained advice about the suitability of the investment from an investment dealer.

Currently, if an issuer wants to raise capital from retail investors that are not existing security holders, the available prospectus exemptions require an offering document. Our data shows that Canadian issuers rarely use these exemptions because of the time and cost involved in preparing the offering document. This means that retail investors do not have an opportunity to participate in the more favourable terms generally offered through private placements, such as a discount to the current market price allowed under exchange policies. This also means that if retail investors that are not existing security holders want to invest in an issuer, they must generally buy their securities on the secondary market, in reliance on the continuous disclosure of the issuer and, in most cases, through an investment dealer.

Under the proposed exemption, the investor would have to obtain advice regarding the suitability of the investment from an investment dealer. This is a key condition for investor protection, as the investment dealer must meet their know-your-client and know-your-product obligations when determining the suitability of the investment. The exemption would not be available if the dealer is a restricted dealer or an exempt market dealer. The exemption would also not be available to dealers that have received exemptive relief from providing suitability advice, such as discount brokers.

Other key conditions include:

  • the issuer must be a reporting issuer in at least one jurisdiction of Canada and have securities listed on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange, or Aequitas Neo Exchange Inc.;
  • the proposed exemption would only be available to reporting issuers whose continuous disclosure is up-to-date and in compliance with applicable securities legislation;
  • under the proposed exemption, the issuer must issue a news release containing information about the proposed distribution and use of proceeds, and a statement that there is no material fact or material change about the issuer that has not been generally disclosed; and
  • the investor must be provided with a contractual right of action in the event of a misrepresentation in the issuer's continuous disclosure record, regardless of whether the investor relied on the misrepresentation.

The three participating jurisdictions are inviting comments until June 15, 2015.

The Multilateral CSA Notice and Request for Comment for the proposed exemption is available on participating CSA members' websites.

The CSA, the council of the securities regulators of Canada's provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.

Contact Information

  • Richard Gilhooley
    British Columbia Securities Commission

    Andrew Nicholson
    Financial and Consumer Services Commission, New Brunswick

    Shannon McMillan
    Financial and Consumer Affairs
    Authority of Saskatchewan